Hardcase Luggage Shop is a small retail establishment located in a large shopping mall

Hardcase Luggage Shop is a small retail establishment located in a large shopping mall. This shop has implemented the following procedures regarding inventory items:

a. Since the shop carries mostly high-quality, designer luggage, all inventory items are tagged with a control device that activates an alarm if a tagged item is removed from the store.

b. Since the display area of the store is limited, only a sample of each piece of luggage is kept on the selling floor. Whenever a customer selects a piece of luggage, the salesclerk gets the appropriate piece from the store’s stockroom. Since all salesclerks need access to the stockroom, it is not locked. The stockroom is adjacent to the break room used by all mall employees.

c. Whenever Hardcase Luggage Shop receives a shipment of new inventory, the items
are taken directly to the stockroom. Hardcase’s accountant uses the vendor’s invoice to record the amount of inventory received.

State whether each of these procedures is appropriate or inappropriate. If it is
inappropriate, state why.

Answer:

a. Appropriate. The inventory tags will protect the inventory from customer theft.

b. Inappropriate. The control of using security measures to protect the inventory is violated if the stockroom is not locked.

c. Inappropriate. Good controls include a receiving report, prepared after all inventory items received have been counted and inspected. Inventory purchased should only be recorded and paid for after reconciling the receiving report, the initial purchase order, and the vendor’s invoice.