Apollo Shoes Inventory Memo

1. Review sales returns (to see if shipment of odd size comes back and that was just a fraud to get it out of the warehouse during the count).

2. Purchases seem very high given sales. It makes me wonder why. For example, look at size 9 Men's speaker shoe - the item with the highest dollar amount. They have 15,425 units on hand. They bought 17,029 in August of this shoe. So, they sell about 1,604 per month in this shoe. So, this might be a 17,029/1,604 = 10.62 month supply? Why so much? I would recommend that the general manager approve purchases to make sure that the purchase manager isn't too cozy with the supplier and accepting shipments based on what the supplier needs to sell rather than sales demand. Also, why a second large purchase two weeks after a large one (Dec 2 and again on Dec 26)?

3. Need an inventory turnover sheet by items number to identify slow-moving items. Obviously size 23 is slow moving and potentially fraudulently shipped to avoid reserving as obsolete. There may be more, especially given the apparent over-buying.

4. Have pre-numbered inventory count sheets and account for all of them. The sheets are numbered but it isn't clear if the employee's put the number on them or not.

5. Obtain the shipping records for the last shipments prior to inventory and the first after the inventory to test for cut-off.

6. Trace test counts into general ledger, verify cost with purchase invoice, and test cost levels for lower of cost or market.

7. Perform analytical procedures to see if inventory is growing at the same rate as sales, gross margins are at expected level and the general reasonableness of ending inventory. The inventory has grown 358% -- that seems a bit unbelievable (see lead sheet). The reserve for obsolete goods is down but those size 23 shoes are still around and shown with full value in the inventory costing sheet.