Merchandise and Inventory Basics
This domain tests assortment planning, stock records and the small set of calculations a retail assistant must handle confidently.
Assortment language
Breadth is the number of categories stocked; depth is the number of options within a category. A planogram is the diagram fixing where each SKU sits. A category is a group of products that customers see as related; a price ladder runs from opening price point to premium.
Stock records
Purchase order → goods received note (GRN) → bin card or stock register → periodic stocktake. Perpetual inventory updates the record with every receipt and sale; a physical stocktake counts shelves to verify it. Rotation rules: FIFO (first in, first out) for general goods, FEFO (first expiry, first out) for perishables and medicines.
Core calculations
- Cost of goods sold = opening stock + purchases − closing stock.
- Stock turnover ratio = COGS ÷ average inventory.
- Shrinkage = book stock − physical stock (theft, damage, expiry, billing error).
- Reorder level = demand during lead time + safety stock.
- ABC analysis: a small number of SKUs (A) contributes most of the value and needs tight control.
Worked example
COGS for the year ₹12,00,000; opening stock ₹1,50,000; closing stock ₹2,50,000. Average inventory = (1,50,000 + 2,50,000) ÷ 2 = ₹2,00,000. Stock turnover = 12,00,000 ÷ 2,00,000 = 6 turns. Reasoning: the shop clears its average stock six times a year, about once every two months; if the category norm is 10 turns, stock is lying too long and markdowns or tighter ordering are needed.
Traps that cost marks
Using sales instead of COGS in the turnover formula; forgetting to average opening and closing stock; using FIFO for milk or medicines instead of FEFO; and treating a markdown as shrinkage - a markdown is a planned price reduction, shrinkage is unexplained stock loss.