Colton,Inc

question 178

Essay

Colton,Inc.,a specialty retailer of customized audio systems for automobiles,installed a perpetual inventory system in the second quarter of 2012.The new system allowed the firm to adjust its merchandise inventories to sales patterns more effectively and to prepare monthly financial statements.Although the system led to an improvement in sales and income,the gross margin on the monthly income statements was falling below both management's expectations and the industry average.At the end of 2013,a physical inventory revealed that actual merchandise inventory was considerably lower than the perpetual inventory records indicated.The merchandise inventories of some stores were off more than others,but all had deficiencies.What probably caused these losses and what steps could be taken to prevent them in the future?

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Definitions:

Utility

A measure of satisfaction or happiness that consumers derive from consuming goods and services.

Indifference Curves

Graphical representations used in microeconomics to show combinations of two goods that give an individual equal satisfaction and utility.

Budget Constraint

The limitations on the spending decisions of consumers based on their income and the prices of goods and services.

Demand Curve

A graphical representation showing the relationship between the price of a good or service and the quantity demanded by consumers.