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1243016091_Chap013(2)

# 1243016091_Chap013(2) - Shrinkage Inventory loss caused by...

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13-1 Shrinkage Inventory loss caused by shoplifting, employee theft, merchandise being misplaced or damaged and poor bookkeeping. Retailers measure shrinkage by taking the difference between 1. The inventory recorded value based on merchandise bought and received 2. The physical inventory actually in stores and distribution centers Shrinkage % = \$ shrinkage \$ net sales

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13-2 Monthly Reductions (Line 4) Reduction % Distribution 3. Month % 6 mo. data April May June July Aug Sept 100.00% 40.00% 14.00% 16.00% 12.00% 10.00% 8.00% 4. mo. reductions \$16,500 \$6,600 \$2,310 \$2,640 \$1,980 \$1,650 \$1,320 Monthly Reductions = Total reductions x Monthly reduction %
13-3 Beginning of Month (BOM) Stock-to-Sales Ratio (Line 5) 5. BOM Stock to Sales Ratio 6 mo. data April May June July Aug Sept 4.0 3.6 4.4 4.4 4.0 3.6 4.0 Stock-to-Sales Ratio specifies the amount of inventory (in retail dollars) that should be on hand at the beginning of the month to support the sales forecast and maintain the inventory turnover objective for the category Retails often use a related measure, Weeks of Inventory

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13-4 Steps in Determining the Stock-to-Sales Ratio Step 1: Calculate Sales-to-Stock Ratio GMROI = Gross margin% x Sales-to-stock ratio Sales-to-Stock Ratio = GMROI/Gross margin % Assume that the buyer’s target GMROI for the category is 123%, and the buyer feels the category will produce a gross margin of 45%. Sales-to-Stock Ratio = 123/45 = 2.73
13-5 Steps in Determining the Stock-to-Sales Ratio Continued Step 2: Convert the Sales-to-Stock Ratio to Inventory Turnover Inventory Turnover = Sales-to-stock ratio x (1 – GM%/100) Inventory Turnover =2.73 x (1 – 45/100) = 1.50

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13-6 Steps in Determining the Stock-to-Sales Ratio Continued Step 3: Calculate Average Stock-to-Sales Ratio Average Stock-to-Sales Ratio = 6 months/Inventory turnover = 6/1.5 = 4
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1243016091_Chap013(2) - Shrinkage Inventory loss caused by...

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