will switching to a perpetual inventory system strengthen a4a hardware rsquo s contr 549607

EX 7-1 Control of inventories

A4A Hardware Store currently uses a periodic inventory system. Ray Ballard, the owner, is considering the purchase of a computer system that would make it feasible to switch to a perpetual inventory system.

Ray is unhappy with the periodic inventory system because it does not provide timely information on inventory levels. Ray has noticed on several occasions that the store runs out of good-selling items, while too many poor-selling items are on hand.

Ray is also concerned about lost sales while a physical inventory is being taken. A4A Hardware currently takes a physical inventory twice a year. To minimize distractions, the store is closed on the day inventory is taken. Ray believes that closing the store is the only way to get an accurate inventory count.

Will switching to a perpetual inventory system strengthen A4A Hardware’s control over inventory items? Will switching to a perpetual inventory system eliminate the need for a physical inventory count? Explain.