Question

In the class lectures and readings, we defined and discuss two different types of inventory systems.

a) List/Identify the two different types of Inventory Counting Systems

1)

2)

b) Discuss the strengths and weaknesses of each system. Be as thorough as possible.

Answer 1

a) Two different types of inventory counting systems are as follows:

1) Perpetual inventory counting system: perpetual inventory counting system regularly updates inventory records. It evaluates all inventory additions and subtractions which are received or dispatched from the stock.

2) Periodic inventory system: Periodic inventory system allows an organization to know the starting and ending of the inventory level. It counts physical inventories.

b) The perpetual inventory counting system

Strengths of continuous inventory counting system are as follows:

• Consistency: The continuous inventory counting system regularly records and evaluates the inventory items which are received, sold or relocated.

• Up to date: Perpetual inventory is the only up to date inventory counting system which maintains a detailed record of all the inventory counts. The up-to-date records help an organization to track all the inventories accurately.

Weaknesses of the perpetual inventory are mentioned below:

• Technical maintenance: updated technology required to maintain the technology as it cannot be manually handled. Specialized software is needed to process a perpetual inventory.

• False reporting: Sometimes, the perpetual inventory does not reflect any actual inventory. Hence, misleading results become very common.

Periodic inventory

Strengths of the regular list are as follows:

• Physical inventory counting: It counts physical inventories by analyzing the beginning and ending inventory.

• Account balancing: It balances accounts by analyzing all the purchases. Periodic inventory adjusts the cost of ending inventory.

Weaknesses of the inventory counting are described below:

• Errors and frauds: Errors and frauds become very common in case of periodic inventory as workers make hurry to complete the task due to time constraint.

• Difficulty in discrepancies: The identification of discrepancy is difficult in periodic inventory because of the lengthy counting process.