Question

Triple Creek Hardware Store currently uses a periodic inventory system. Kevin Carlton, the owner, is considering the purchase of a computer system that would make it feasible to switch to a perpetual inventory system.Kevin is unhappy with the periodic inventory system because it does not provide timely information on inventory levels. Kevin has noticed on several occasions that the store runs out of good-selling items, while too many poor-selling items are on hand.Kevin is also concerned about lost sales while a physical inventory is being taken. Triple Creek Hardware currently takes a physical inventory twice a year. To minimize distractions, the store is closed on the day inventory is taken. Kevin believes that closing the store is the only way to get an accurate inventory count.Icon Will switching to a perpetual inventory system strengthen Triple Creek Hardware’s control over inventory items? Will switching to a perpetual inventory system eliminate the need for a physical inventory count? Explain.

Answer 1

Will switching to a perpetual inventory system strengthen Triple Creek Hardware’s control over inventory items?

• Yes, a perpetual inventory system provides updated information about inventory levels and costs. Since it is updated immediately, many of the company's problems could be solved, e.g. you can place an alert for minimum inventory levels on certain products and you can determine if the stocks of low sellers are too high.

Will switching to a perpetual inventory system eliminate the need for a physical inventory count?

• It will not completely eliminate the need to carry out a physical inventory, but it should reduce it substantially. Also, you can carry out a random physical inventory for certain products only. If the physical count shows that there are problems with the registered inventory, then you can carry out a complete physical count.

Answer 2

Yes, switching to a perpetual inventory system strengthen Triple Creek Hardware’s control over inventory items.

No, switching to a perpetual inventory system will not eliminate the need for a physical inventory count

Step-by-step explanation:

Perpetual Method

Perpetual Method is the method of recalculating the value of goods held after each transaction.

This will strengthen Triple Creek Hardware’s control over inventory items as high detail of purchase and sale of goods is maintained.

Physical Count

Goods stolen and damaged do not get scanned and noticed by perpetual method, thus a physical count is necessary and important over and above the perpetual method.