Campus Bookstore is a profit-making organization that reports to the Student Council. Martha Wailua, a part-time student employee, noticed that the managers at the bookstore seemed unconcerned about the costs of carrying large inventories. For example, several times a year the manager of the general merchandise department (one of six departments) bought large quantities of merchandise (clothing, gift items, etc.) with the university and sports team logos to get quantity discounts. The general merchandise manager also had argued successfully for more warehouse space for the merchandise, for which the bookstore pays rent to the university. Inevitably, several months later, the manager marks down the unsold merchandise to purchase cost or less to make room for the next purchase. This seemed very inefficient to Wailua, and she began to analyze the bookstore’s purchases and sales for the past year. She gathered the following data.

Percent of Were Purchased Cost of Goods Average Warehouse in Advance Department Sold Inventory Space of Sale New textbooks .............. 5,730,972$5,730,972$840,475 25% 63 USSGITEXTOOOKS =. jeneeys e ur 1,258,007 180,600 12 37 Trade books ....... gs pare 563,686 370,500 10 86 SLUT9)[] L c Sera me re iota ee 662,560 251,700 8 Tal General merchandise... ...<... 883,251 640,600 25 94 COMBULCTS ss

a. ers..ut dara 2,246,600 402,000 20 20, TotaliStore SerGRe Mnau oehn e 11,345,076$11,345,076$2,685,875 100% 66.3 Required

a. Compute inventory turnover ratios (i.e., cost of goods sold + average inventory) for each department and the bookstore as a whole. What would these ratios tell Wailua about the management of inventories at Campus Bookstore? Is it reasonable to compare these ratios across departments?
Why or why not?

b. A privately owned store in the university commercial area sells licensed (general) merchandise with the university’s logo and reported to Wailua that its inventory turnover ratio for the past year was 5.30. Is that a legitimate benchmark for Campus Bookstore? Why or why not?

c. What are the benefits and costs to the bookstore of its methods for purchasing and inventory?

d. What information would Wailua need to place a dollar figure on all of those costs?

e. Wailua has learned that the manager of the General Merchandise Department 1s a close personal friend of the bookstore manager and receives incentive prizes from suppliers for ordering large quantities of merchandise. What are her ethical responsibilities?