As a consultant for ABC Consulting Company, you have been hired by Easons Electronics, a company that owns 25 electronics stores selling radios, televisions, compact disc players, stereos, and other electronic equipment. Since the company began business 10 years ago, it has been using a periodic inventory system. However, Eason just returned from a seminar where some of his competitors told him he should be using the perpetual inventory system. Eason is not sure he should believe his competitors. He wants you to advise him about his inventory choices and make a recommendation about the inventory he should use.

(Why use a perpetual system?)

Two years later

It has now been two years since you advised Eason to switch to the perpetual inventory system. He is very happy with the additional information he has about inventory levels and theft. He has hired you for advice once again. This time, Eddie has been to an inventory management seminar where he heard that most companies have too much money tied up in inventory. He wonders if his company could be much more profitable if it reduced its inventory level. What would you tell him?

(Should we reduce inventory?)