Control of Inventories

Triple Creek Hardware Store currently uses a periodic inventory system. Kevin Carlton, the owner and sole stockholder, is considering the purchase of a computer system that would make it feasible to switch to a perpetual inventory system.

Kevin is unhappy with the periodic inventory system because it does not provide timely information on inventory levels. Kevin has noticed on several occasions that the store runs out of good-selling items, while too many poor-selling items are on hand.

Kevin is also concerned about lost sales while a physical inventory is being taken. Triple Creek currently takes a physical inventory twice a year. To minimize distractions, the store is closed on the day inventory is taken. Kevin believes that closing the store is the only way to get an accurate inventory count.

a. Will switching to a perpetual inventory system strengthen Triple Creek Hardware's control over inventory items?

No, because FIFO cost methods cannot be used with a perpetual inventory system.No, because perpetual inventory systems cannot be computerized.Yes, because perpetual inventory systems do not use any inventory cost flow assumptions.Yes, because store managers can keep track of how much of each item is on hand.

b. Will switching to a perpetual inventory system eliminate the need for a physical inventory count?

No, because a physical inventory is required under state laws.No, because a physical inventory must be taken to verify the accuracy of the inventory records in a perpetual inventory system and detect damage or theft to inventory.Yes, because the perpetual inventory system will always match the actual inventory.Yes, because the physical inventory count must be done with periodic inventory records.