Financial Merchandise Management

1. Financial Merchandise Management

2. Agenda • News Items • Newswatch Proposals Due • Financial Merchandise Management • Concepts • Exercises • Case, “A Buyer’s First Trip to Market”

3. Financial Merchandise Management • Financial Merchandise Management • encompasses merchandising budgets and forecasts, accounting systems and integrated dollar and unit controls. • A retailer specifies which products are purchased, when products are purchased, and how many products are purchased • 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

4. 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

5. 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: • Calculate the cost complement • Calculate deductions from retail value • Convert retail inventory value to cost

6. 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

7. 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

8. Chapter 16 Discussion Questions • Small Group exercise • Take a few minutes to compare your answers to discussion questions 8, 9, 12, 14 • For your reference • There are computer exercises that can aid you with these topics if you are experiencing difficulty (www.pearsoned.ca/bermanevans)

9. A Buyer’s First Trip to Market

10. 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 BOM and EOM inventory levels • Can be used as a control mechanism (for both inventory effectiveness but also buyer performance)