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Merchandise Inventory: common issues and ethical violations

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For retail organizations, merchandise inventory can be an asset or a liability. When it moves along at a healthy clip it is an asset, one that adds to the bottom line. If customers are slow to take to it or, worse, find it unattractive, the merchandise inventory becomes a liability, one that ties up cash and decreases in value over time.

Question:

Discuss on the issues (at least two) in inventory management and the possible ethical violations (at least two) commonly encountered.

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Solution Preview

Inventory management is a critical area, and can be a competitive advantage or disadvantage. For instance, some firms, such as Amazon, do not believe they need to stock items. They just need to be able to tell you about the items and ship them quickly. But the shipping can come directly from the vendor, skipping Amazon's dock altogether. Other firms pride themselves in always (or nearly always) having the item on hand or a reasonable substitute, such as Publix. So, one issue is how much stock to carry, a skeleton of quickly flyers or a full suite of product.

Another issue is how to account for the cost. That is, will the firm use LIFO, FIFO, weighted average or specific ID to allocate costs to ...

Solution Summary

Your commentary includes three issues and four ethical concerns surrounding inventory.

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