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The Problem - Inventory adjustments
Physical inventory results had wild
swings, leading corporate management to have no confidence
in financial controls. Even in those situations where
the adjustments were minor, there was no confidence that it
was not the result of luck or that the results would be
repeated the next period.
The Solution - Statistical measures
Eliminated all the manual efforts of the
accounting department to do estimates and adjustments and
created the necessary processes and controls within the
inventory system so that transactions would be handled at
the source. This made those responsible for the
transactions also accountable for the results. Once
this was done, the perpetual inventories could be reconciled
to the general ledger, providing cleaner data for analysis.
Finally, statistical analysis was performed by part number
of physical inventory results to perpetual counts, providing
coefficients of correlation and standard errors which were
used to assess the true degree of accuracy and control in an
inventory and to set expectations for performance
improvements. |
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Statistical Analysis |
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