Conceptual Understanding: periodic versus perpetual Inventory systems
Books Unlimited is a well-established chain of 20 bookstores in western Ohio. In recent years, the company has grown rapidly, adding five new stores in regional malls. Each store's manager selects stock based on the market in his or her region. Managers select books from a master list of titles that the central office provides. Every six months, a physical inventory is taken, and financial statements are prepared using the periodic inventory system. At that time, books that have not sold well are placed on sale or, whenever possible, returned to the publisher.
Management has found that when selecting books, managers of the new stores are not judging the market as well as the managers of the older, more established stores. Management is therefore thinking of implementing a perpetual inventory system and carefully monitoring sales from the central office. Do you think Books Unlimited should switch to the perpetual inventory system or stay with the periodic inventory system it has used in the past? Discuss the advantages and disadvantages of each system.