ABC Analysis for Inventory Management

Total asset turnover : This ratio measures the efficiency of a company’s use of its assets

1. A fast-food restaurant asks customers to evaluate the drive-thru service as good, average, or poor. What level of data measurement is this classification?

Materiality is then determined as 1% of total 2010 revenue/sales: $61,159. This would be the overall materiality for the entire financial statement.

Interval-Level: Indicates the levels between categories, ranks them and specifies the amount between each rank; does not have a true zero (Ex: IQ

330-10-30330-10-30-1 The primary basis of accounting for inventories is cost, which has been defined generally as the price paid or consideration given to acquire an asset. As applied to inventories, cost means in principle the sum of the applicable expenditures and charges directly or indirectly incurred in bringing an article to its existing condition and location. It is understood to mean acquisition and production cost, and its determination involves many considerations. 330-10-30330-10-30-2 Although principles for the determination of inventory costs may be easily stated, their application, particularly to such inventory items as work in process and finished goods, is difficult because of the variety of considerations in the allocation of costs and charges.

definitely recognize the importance of this as seen through their capturing of the company’s sales in percentage according to different categories of items. Various items such as foods, sundries, hardliners and fresh foods among others have been captured in the company’s annual report according to their percentage volume of net sales for the company for the last three financial years. The categorisation of items allows both the company’s directors and outsiders to keep up with the economic reality of the company’s performance over the last few years. The directors can then, for example, decide to increase the amount of warehouse space afforded to foods depending on the consistent performance of the category in terms of percentage volume of sales.

5. Inventory Turnover: This ratio is rendered by taking the cost of goods sold, for a time period, divided by average inventory. This shows how many times a firms inventory is sold and replaced during the period of time that it is calculated for.

b. The inventory write down recorded, as an expense by the company is $4.4 million. It is measured at lower of cost and net realizable value. Cost is measured by weighted average using standard cost method or

Total annual purchases were approximately $250, and about $60 million to be sourced through Materials Department

With this company the inventory management ratios further indicate that there may be an issue with inventory and inventory controls. The inventory turnover ratio is lower than the industry average and the days’ sales in inventory are high. A company wants to turn inventory quickly to reduce storage costs, and

A third activity ratio is the inventory turnover ratio, which indicates the effectiveness with which the company is employing inventory. Since inventory is recorded on the balance sheet at cost (not at its sales value), it is advisable to use cost of goods sold as the measure of activity. The inventory turnover figure is calculated by dividing cost of goods sold by inventory:

Activity ratios identify how effectively management is turning over inventory. One activity ratio is the inventory

The data can easily loss because they only use a logbook to record their inventory data. With the system, it will help more on the security of the data. Inventory loss hard to detect because admin need to review one by one page in the logbook, but with the system developed, it may help the admin to detect the inventory in and out from the

inventories of finished goods, or whether less was produced than sold, which would mean a

❖ Historical inventory turnover rates should be analyzed so to identify the appropriate range of supplies to be on hand in each category.