In the case, the University Store provided plenty of goods and services with various costs. They frequently have their costs, selling prices and discounted prices changed. This process would contain a large amount of work since the Store kept large number of books. Although the Store has planned to record data by establishing a new software system, they used the retail method easing and simplifying inventory tracking.
Comparing the FIFO or the LIFO method, the retail method would be the better to value inventory with two major reasons. One reason is that GAAP would accept the report under the retail method. While applying the FIFO or LIFO method, the Store would calculate historical percentages to estimate ending inventory cost. However, they would use the “current cost-to-retail” ratios, which are more acceptable and reliable for GAAP financial report. The other is that the Store could be easy to record inventory. The Store could record numbers including the total cost and purchase retail value, costs and retail prices, and total sales in a period. Also, the Store sometimes marks up the original sale prices, which should be marked down before calculating ending inventory. By acquiring same information, cost-to-retail percentage in FIFO or LIFO method are able to be calculated with omitting beginning inventory or only using beginning inventory respectively.
Causes and Procedures for Inventory Obsolescence
The Store realized that they needed to consider the inventory obsolescence problem. They have found the large volume of “inactive” books, which could re-adopt in the next semester or could not be returned to publishers. The major causes of this problem could be divided into four parts.
Firstly, the turnover rate of returns manager was significantly high in the recent years, causing difficulties to clear the unneeded textbooks before the new edition published. If the textbooks became obsolete and unable to be returned to