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Question: inventories 6 marks assume you are opening a new store...

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Inventories (6 marks)

Assume you are opening a new store. To finance the business, you need a $500 000 loan, and your banker requires a set of forecasted financial statements. Assume you are preparing the statements and must make some decisions about how to do the accounting for the business.

Required

1. Which type of inventory system will you use for better inventory management? Perpetual or periodic? Give your reason.

2. How often do you plan to do a physical count of inventory on hand? What will the physical count accomplish? You are required to justify the frequency of physical stocktake.

3. Inventory costs are rising. Which inventory costing method would have the effect of maximising net profit? Explain.

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