THE PERPETUAL INVENTORY IN .CHEMISTRY STOCKROOM MANAGEMENT 1.E. ZANETTI Columbia University, New York, New York
UP
TO some ten or twelve years ago most chemistry department stockrooms were kept on a yearly inventory basis. The purchases were duly recorded and at the end of the year a physical count of the inventory, adjustments for. stock used and paid for were made. The new year hegan with actual supplies on hand as counted. Prices charged were settled by as good a guess as possible from the purchase price, usually employing an apparatus supply house catalog as basis. The departments made their own purchases and, as prices were fairly steady, the stockroom manager had few complaints. With the centralization of all university buying into a purchasing office, the arrival of Government contracts requiring careful auditing, the increase in prices, and multiplication of competing supply houses, the picture altered considerably. University auditors began to insist on careful cost accounting which necessitated a perpetual inventory system, in
accordance with approved merchandising procedure even if no chemical stockroom manager can possibly pretend to merchandising intent. The auditors insist that although no profit be made this is the only system by which they can tell with any degree of accuracy just how allotted funds are spent. Perpetual Inventory. A perpetual inventory is an accounting device by which a record of stock on hand, quantities, cost, and selling price is ideally kept from day to day so that the situation is known at any time by a mere glance at the record. Orders can then be placed as needed so as to keep the inventory as nearly constant as possible. Record Cards. These records are kept on cards, one card for every item in stock. The cards are of a standard commercial type and not specially made. On one side they have spaces for date, vendor from whom purchases are made, order number, quantity, date of
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delivery, quantity delivered, invoice amount, unit cost, and selling price. This is the side from which the average cost price per unit is moved up or down as neededa very necessary function where prices are rapidly fluctuating. This cost price is determined by averaging the cost of the latest shipment with the cost of that on hand. The average is termed "The Moving Average" and from it the selling price is determined, usually employing . . - the latest catalogue price of a commercial supply house. The other side of the card contains the descri~tion of the item-"distilling flask," "desiccator," "sulfuric acid," etc., and the code number, then the qnantity on hand, which is altered as sales slips come in so that at any time the balance on hand is known. The unit of measure and selling price are recorded with sufficient space in this column to provide room for changes. Inventory Wheel. The cards are mounted on a large wheel. Each card has a colored tab, one color for chemicals and another color for apparatus. For a good sized laboratory, handling some 1300 undergraduates and graduates and about 172 research students per semester, plus some 500 summer session students, the inventory carries about 2000 chemical cards and 4000 apparatus cards, each indicating a piece of apparatus or a chemical. Code Number. In order to avoid having to write out the long name of every item with every transaction a code number is assigned to each item. Apparatus, for example, is divided into 11groups: glassware under G, electrical equipment under E, Pyrex ware under P, valuable metals (platinum) under V, etc. These letters are followed by four digits. The first two denote the item: beaker, bottle, flask. The last two, the specification of the item: "125-cc. with lip," "700-cc. wash." For example the code number denotes P
10
P 1001 = Pyrex
Beaker
P P 1102 = Pyrex
Bottle
01 12.5~~. with lip
11
The chemicals are divided into inorganic, I, and organic, 0, with digits following them indicating chemical and size of container. The coding of these items which simplifies enormously the mechanical work involved requires long training on the part of the clerks entrusted with the recording of the purchases. Continuous Counting. In order to check the cards against physical inventory i t is necessary to keep one clerk doing physical count of selected items, so that discrepancies can be detected and embarrassment avoided when auditors make a selected spot check a t the end of the year. Despite the best care taken discrepancies occur, but on the whole they are not large and are taken care of through a profit-and-loss account termed the Inventory Reserve. Inventory Reserve. Since Inventory buys a t wholesale and sells a t catalogue prices there is a book profit a t the end of the year. Part of this is kept as a reserve
against which to charge discrepancies and write off obsolete apparatus or deteriorated chemicals. The other part is turned into the University funds, thence to the Laboratory Costs account mentioned below. Laboratory Costs Account. It is not necessary to carry a large inventory nor an inventory of rarer chemicals and pieces of apparatus which are little used. To supply these a Laboratory Costs account has been set up with an annual budget chargeable to the University general funds. Against this account are charged all purchases of rarer chemicals and apparatus, salaries of clerical help, shop mechanics and glassblower salaries, minor repairs and installations. This account is also used to carry charges against the students for certain articles of equipment which they are required to have but which are not returnable. These are termed "X" items. They include such articles as sponges, goggles (which cannot be resissued under the New York sanitary code), soap, aprons, files, matches, etc. The nonreturnable articles once withdrawn from inventory cannot be considered as loans as are other forms of apparatus which are taken back if in good condition and for which the student's account is credited. Since the student bills are not paid until the course is over, these accounts must be visibly charged somewhere, hence the "X" items chargeable to Laboratory Costs account. At the end of each term the Bursar collects from the student and reimburses the Laboratory Costs account for the price of the "X" items. The Student and the Inventory A c m n t . At the beginning of each term the student is charged on an account card which is handed to him a t the first laboratory session with a set of apparatus and reagents which are made up in advance and placed in every laboratory desk. These sets are called "kits." The kits are carried as units in the perpetuil inventory and vary in content and price with the nature of the course. The value of each kit determines the amount of breakage deposit that must be made with the Bursar when the student registers for the course. These deposits vary from $8, for the elementary courses, to $30 or $40 for courses in advanced organic which require special apparatus. At the beginning of the term the student checks the apparatus in his desk against the list furnished him and if there are any discrepancies, or apparatus is damaged, he reports to the assistant who sees to it that the stockroom makes good. At the end of the term the student cleans his apparatus and reagent bottles and the assistant checks the set and makes the student replace missing or damaged articles by purchasing from the stockroom. The apparatus, if in good condition, is then placed back in the kit item of inventory. Students are not charged for ordinary chemicals and solutions. These are paid for to inventory by the Laboratory Costs account. The student's breakage deposit is charged by the Bursar with the items that were lost or damaged and inventory account credited with the amount. The student is then dealing directly with the inventory account. This necessitates recording an enormous num-
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In these days of Government-financed projects, where the Government auditors insist on accurate costkeeping methods, such a system is of great value in arriving a t supply costs, which must be definitely proved before payment is made. In passing, and in somewhat of a diversion from the present subject, it may be said that the selling of supplies a t cost to Government contracts leads to some anomalies. In a rising market, as we have had for the last seven years, the University has to replace a t much higher cost than it sold to the Government, despite the moving average. It remains to he seen whether in a falling market the Government auditors will be content to approve higher prices than current markets. It has been proposed, though not yet accepted, that replacement costs be the ones to be written into the Government contract. There are necessarily some variations in these costkeeping systems. For example, the platinum inventory is kept separate, though part of the perpetual inventory. Although it is dispensed by the stockroom, platinum is kept as a particularly accurate part of the perpetual inventory and because of its great value careful track is kept of its various items. It is not classified under "electrodes," "crucibles," "dishes," but all under "Platinum" with subdivisions accord'mg to uses. Another variation is related to "perishable" items such as ice and dry ice which are carried as "X" items and handled by the Lahoratory Costs account. The student draws from the Laboratory Costs account and is charged with the amount on his half-yearly hill by the Bursar who on collecting his bill credits Lahoratory Costs just as any other item. The Machine Shop with its salaries, inventory, and labor cost account is also carried on a separate account in the Laboratory Costs setup. The physical inventory is rather small and charges against it are on a par with the kits--.small in value but numerous. The inventory is checked yearly. It is contemplated to enlarge this inventory. With the widespread use of electronic apparatus and a large number of parts which are needed to set them up we may before long he compelled to estabNecessity of Perpetual Inventory. Of course, a Uni- lish a special section of the perpetual inventory to hanversity located in a large city with chemical and ap- dle that type of equipment. paratus supply houses within easy call need not mainThe glassblower's account is almost entirely contain a large inventory, but neither can it live from hand cerned with labor costs. It draws all the material to mouth for its teaching needs. Not only must a cer- needed from the general inventory and by special orders tain level of supply he maintained but sight must not on supply houses chargeable to Lahoratory Costs, and be lost of the fact that large orders are bound to lower submits statements of materials and labor needed to costs and that time is necessary for the central purchas- make up pieces of apparatus as ordered. These are ing officeof the University to ask for and consider bids billed to the purchasers through the Bursar and when from suppliers. A number of small orders made in a paid are credited to the Lahoratory Costs account. hurry is an expensive way to spend the University's There are many other departments of the University money and one must also guard against contingencies which do not require large enough supplies to justify such as a transportation strike, which can paralyze de- a stockroom of their own and these purchase from our liveries and laboratory courses unless the management inventory, machine shop, and glassblower accounts. has looked ahead and maintained sufficient stocks to They open accounts and have materials charged to carry on for a while. It is particularly for such reasons them very much as a student does, paying Inventory or that the perpetual inventory, at least in a modified Laboratory Costs from their own departmental approform, can be of service not only to the accounting de- priations. partment but also to the laboratory management. Personnel. The personnel required to keep this sys-
her of transactions h c h must be entered on the perpetual inventory wheel. Partial Perpetual Inventory System. The Perpetual Inventory System was tried a t Columbia for some six years and was found to be cumbersome and expensive. There was no particular object in keeping track of transactions of very small and very active stock when the cost of the labor involved more than used up any possible economy and did not justify itself as a safeguard. After much argument with auditors it was finally decided that the kits and the dispensing stockrooms (the selling units) would not be kept on the perpetual inventory account hut removed to a special account a t the beginning of each academic year and returned a t the close to the inventory account. The kits and the stock in the dispensing room were physically counted and placed on the special account and these will be physically counted and returned to inventory at the end of the year; discrepancies will he made up by the Lahoratory Costs account. It might he objected that the Laboratory Costs account should be debited with the cost of stockroom stock and of the kits, since it is an active account with a yearly appropriation, but the cost of the stock in the dispensing rooms was far larger than the appropriation of the Lahoratory Costs account, which would have been wiped out before it began operating. This would bave necessitated deficit financing during the year, which, to be sure, would have been only a bookkeeping transaction hut difficult to explain to a hoard of trustees. This plan then, keeps the advantages of the perpetual inventory which permits determining on short notice the actual status of the main stock and does away with the cumbersome detail and expense of following the course of a large number of small transactions. The size of stock in the dispensing room is determined from experience over the years and the stockroom can always draw on the inventory when supplies become depleted. A perpetual inventory is kept only of the main stock in unbroken containers and the stockrooms are considered as an item in the total inventory.
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tem going amounts under the modified setup to four clerks under a head bookkeeper and ten stockroom clerks. This paper does not pretend to describe the complete
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setup of a chemistry-stores accounting and billing syatem but only the particular phase of it which concerns the cost keeping and the problems that arise between the management and the University auditors.
