Inventory System

Inventory Systems

Omincare is a leading pharmaceutical provider for seniors. In order to keep track of their inventory they utilize a periodic inventory system. Periodic inventory systems keep the inventory balance at the same value that it was at the beginning of the year. At year end, the inventory balance is adjusted to a physical count. To report any additional inventory purchases in a periodic inventory system, an account called Purchases is used instead of debiting the Inventory sheet.

A detailed inventory record is not kept when utilizing a periodic inventory system. In actually the periodic inventory system determines the costs of goods sold only at the end of the accounting period —thus, periodically.

In order for a company like Omnicare to determine the cost of goods sold following steps need to be completed:

1. Establish the cost of goods at hand at the beginning of the accounting period.

2. Add the costs of additional goods purchased to the total

3. Subtract the costs of goods still in inventory at the end of the accounting period.

A positive feature of the periodic inventory system is that it is less expensive than a more detailed inventory system. It decreases the need for expensive software systems, employees and other expenses required to have frequent inventory updates.

Some disadvantages are that periodic inventory system provides less control over inventories than other system. Since periodic inventory records show the quantities that should be on hand only periodically, the company can not accurately have an inventory count at all times so any problems may not be found until very late.

Omnicare Net Sales listed below are not inclusive of goods cost and other indirect costs. These costs are deducted from the total.

2000 2001 2002 2004 2005

|$1,987,839 |$2,183,036 |$2,632,754 |$3,499,174 |$4,119,891 |

(Kimmel,...