The primary inventory of both Denny’s and Red Robin is consisting of food and beverages, but Red Robin has supplies inventory in hand also that is 2/3 of its total inventory.
Inventory of both Denny’s and Red Robin is valued primarily at the lower of average cost or market, which means it use first-in, first-out ( FIFO) method to compute its inventory and cost of goods sold. Therefore, Denny’s assume that the dated purchases or inventories are sold first. Under this method, the inventory on balance sheet makes more sense or more accurate, but it may cause the COGS is lower than the average market value that makes the less accurate in Income statement.
During the year, Denny’s had about $2,890,000 inventories on hand that decreased from $3,438,000 in year 2011. The reason why the inventories decreased was that Denny’s sold lots of its stores and licenses to franchise and third parties. They still need to provide or sell its inventories to those franchises, but reducing on stores cause them to reduce their inventory which is food and beverage in hand. As the same reason, the cost of goods sold of Denny’s decreased from $61,017,000 to$49,025,000 during 2012.
In the food service industry, companies ran their business as purchase the inventories which are food and beverage and sell the inventories very soon. Therefore, Denny’s, as one of these companies, may not have many risks on inventory valuation. One of the risks they may need to face is the fluctuating…