Financial Merchandise
Management
Financial Merchandise Management

Financial Merchandise Management


A retailer specifies which products are purchased, when products are
purchased, and how many products are purchased



encompasses merchandising budgets and forecasts, accounting systems and
integrated dollar and unit controls.
Dollar control - planning and monitoring the financial investment in
merchandise
Unit control – planning and monitoring the quantities of merchandise
handled
Two ways to account for merchandise:


Cost accounting system - values merchandise at cost plus inbound
transportation charges
Retail accounting system - values merchandise at current retail prices
Disadvantages of Cost-Based Inventory Systems

Requires that a cost be assigned to each item in
stock




Problematic because UPC labels and price tags
record retail dollar value
Requires a complex coding process to match cost
with items during physical inventory counts
FIFO v. LIFO
Does not adjust inventory values to reflect style
changes, end-of-season markdowns, or sudden
surges of demand
The Retail Method


Closing inventory is determined by
calculating the average relationship between
the cost and retail values of merchandise
available for sale during a period
To do this, you must:
1.
2.
3.
Calculate the cost complement
Calculate deductions from retail value
Convert retail inventory value to cost
Advantages of the Retail Method




Valuation errors are reduced when conducting a
physical inventory since merchandise value is
recorded at retail and costs do not have to be
decoded
Because the process is simpler, a physical
inventory can be completed more often
Profit-and-loss statement can be based on book
inventory
Method gives an estimate of inventory
throughout the year and is accepted in insurance
claims
Limitations of the Retail Method


Bookkeeping burden of recording data
Ending book inventory figures correctly computed
only if the following are accurate:










Value of beginning inventory
Purchases
Shipping charges
Markups
Markdowns
Employee discounts
Transfers
Returns
Sales
Cost complement is an average based on the total
cost of merchandise available for sale and total
retail value
Chapter 16 Discussion Questions


Small Group exercise
Take a few minutes to compare your answers
to discussion questions 8, 9, 12, 14
Takeaways

Careful merchandise analysis, planning and forecasting


can reduce some of the problems commonly associated with
inventory (being out-of-stock, being stuck with excess merchandise,
linking shelf space with revenues, fad merchandise, predicting
customer demand)
Financial merchandise management



lets you know what you have on hand and how much you can
purchase in a time period
helps determine shelf space requirements by knowing Beg. and End.
inventory levels
Can be used as a control mechanism (for both inventory effectiveness
but also buyer performance)