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Asset Valuation Paper: Piggly Wiggly, Inc.

2278 words - 9 pages

Piggly Wiggly, Inc. is a national chain of convenience stores. They sell franchise stores to independent owners. Because Piggly Wiggly is a large national chain, individual franchised stores receive corporate buying power, provided they continue to pay a yearly franchise fee. This buying power allows the independent owners discounted prices on goods, mutual advertisements, and rebates from large venders such as Pepsi Co., and Coke. By retaining a Piggly Wiggly franchise, independent owners are also provided with access to a computerized inventory system that aids the store in re-ordering sold goods.The inventory at Piggly Wiggly will contain both perishable and non-perishable items. All items will be ordered by the store manager on a weekly basis. The majority of non-perishable goods will be inventoried and returned to stock by store employees. Perishable items provided by large, well-known venders such as Coke, Pepsi, Beer, Chips, etc., will be stocked and inventoried by the vender. The vender order will be verified by the store manager prior to allowing the outside vender access to shelf the product. Piggly Wiggly also offers the ability to purchase gasoline to its customers.Piggly Wiggly, Inc. sold a franchise store six months ago to the Bakers, who live in Florida. Prior to the purchase, the Bakers received detailed reports attesting to their potential first year revenues from Piggly Wiggly, Inc. The Bakers' franchise is located on a major highway. Their store is the last stop for gasoline prior to a three-mile-long bridge. The next rest area is 15 miles past the bridge. The Bakers completed the store build-out and spent thousands of dollars in equipment. After six months of business, the Bakers' store is experiencing significant losses, with increasing monthly inventory costs.The Bakers have hired a team of consultants to analyze and recommend inventory cost flow methods and capitalization policies for their Piggly Wiggly store. The following report will detail choices made for the Bakers that will assist them in meeting their goals for this new business endeavor.Current Inventory AnalysisThe analysis of the inventory procedures currently in place with respect to the Piggly Wiggly convenience store leads to the following suggestions and recommendations. It is important to recognize the value of having the correct inventory system, along with the correct inventory cost-flow method, to allow for the efficient allocation of a true valuation of the merchandise available or sold. The current method involves the use of a computerized perpetual inventory system. This system works well for this business application due to the fact that the business is a convenience store. The Piggly Wiggly's location means that it is the last stop for at least 18 miles and therefore, it is reasonable to assume that there is a high expectation for high volumes of business in relation to other Piggly Wiggly franchises. Due to the expected volume of business, the...

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