If that’s not what you meant, I don’t know what your point was.
You said
If the item would otherwise have sold, but the person who would have bought it now buys a different one of the same thing, then it DID “increase the normal expected daily profit” (in the register at least).
If someone believes that the value of the item that the thief ended up with is $70, and the store should value that item at $70, then I disagree with them. If the sale wasn’t to the thief, then the item would have been valued at its cost and the store would have recorded a profit.
If the store values the item at cost, then presuming the cost isn’t the same as the sales price, then absolutely it has to account for the profit. It received cash, the item was taken out of it’s inventory, and in order for the transaction to balance, then the profit has to be accounted for.
It isn’t what I meant, and I didn’t say it.
I can’t even figure out what part of it you don’t understand.
I’m just worried we’re about to take the riddle into some Karl Marx “value is socially constructed” navel-gazing territory. It’s far better to assume that the puzzle gives us the relevant information and solve it that way.
I don’t think the assumption above is an unreasonable one, but I don’t think it an obvious one, and it does add a third unstated transaction to what’s being discussed. Basically, you’re saying that there’s an opportunity cost that needs to be recognised. So you’d record both an unrealised profit, and a loss to theft. That won’t change the store’s daily profit at all, but sure, if you assess the scenario that way, you can get the loss attributable to the thief back to $100. But if that’s the case, why mention the purchase by the thief in the scenario at all? If a set number of items sales were going to be made, whether or not the thief was one of the purchasers, then it’s irrelevant that he bought the item.
I don’t see how this makes it any less irrelevant.
I could just as easily say that from “an accounting perspective”, the accountant will record a hundred dollars missing from the till and not even be aware that an item was sold with the money.
The relevant information is that what is gone from the store is $30 cash and the item. The question is whether the item should be valued at it’s sales price of $70, or at its inventory value which is presumably less than $70. If the thief hadn’t made the purchase, the store would have valued the item at it’s inventory value. That shouldn’t change because the thief was the one making the purchase. The only difference from the thief making the purchase is that the scenario contains two transactions rather than one. Suppose the scenario was that the thief had stolen $100 cash, and an honest customer had purchased the item. What is the net effect of both of those events? The store no longer has $30 cash and the item, but is recognising a profit. Some people think the store shouldn’t be recognising that profit if the thief is the one making the purchase. I disagree with them.
“An accounting perspective” is relevant, at least for my particpation in this thread, because we’re discussing concepts such as transactions, cost, profit and inventory value. It provides a framework for those concepts.
As for your point, I don’t want to put words in your mouth, but you seem to be saying that the costs of the components of a produced item (i.e. cocktail ingredients) are non-negiglible, even if they aren’t accounted for. If that is your point, I don’t disagree with it. But it merely means that the store/bar’s “loss” is $30 cash plus $x value of ingredients, rather than the $30 loss that’s accounted for, where x is a small positive number. I don’t see how that makes a difference to the argument that the store/bar’s net losses are much smaller than the $100 loss some people are saying is the answer to the riddle.
If you disagree with that, then what if the item that was purchased by by the thief was a service - something that didn’t exist until the service was provided. What direct cost should be assigned to the provision of the service such that it equals its sales price?
Then you are wrong.
Look, suppose the store sells clothes and the item in question is a patterned shirt. They acquire stock in batches of 25 and reorder when inventory is down to 5. They order a total of 200 items before that specific design of shirt is discontinued, and will never be available again.
Scenario 1 - a thief steals $100, then buys a shirt for $70. 199 other people buy shirts. All shirts in stock are sold.
Scenario 2 - a thief steals $100, and absconds without making a purchase. 200 other people buy shirts. All shirts in stock are sold.
Scenario 3 - a thief steals $100, and absconds without making a purchase. 199 other people buy shirts. 1 shirt is left unsold.
Are these scenarios different in terms of store profit and loss?
1 and 2 are the same, but 1 and 3 are different. It doesn’t matter if the thief or someone else buys the shirt. It does matter if the shirt is sold or unsold.
I don’t understand how this is a question. They lost $100 in cash and merchandise. He gave the original $100 back to buy the item so they are only out the item and the change.
Not quite, they lost $100 in cash. They didn’t ‘lose’ merchandise, they sold it.
The cash register is $100 short, and the stock is exactly as expected.
It provides a language.
But real-world accountancy has limitations of information gathering that simply don’t apply to a hypothetical riddle such as this.
That is part of my point.
The rest of my point is simply that the language of accounting (or more broadly, the language of economics) is a way of talking about real costs.
What is relevant to the riddle are those real costs. If the expediencies of pragmatic accounting sometimes ignore some of those costs – even for legitimate purposes within those pragmatic contexts – that simply is not relevant to the intent of the riddle. We could actually use similar expediencies to claim that the real answer is a 100 dollar loss.
I think the idea of a “100 dollar loss” is understandable from a certain perspective.
I also think the idea of a “100 less the margin of the sale” is likewise understandable.
I also think the idea of “100 less the expected margin of the sale, using a given density distribution for the probability that the item would have been bought anyway versus whether the item would have remained for a long time, or even indefinitely, in inventory, plus the additional hassle for dealing with the cash loss when noticed” is similarly understandable. More than once, I’ve considered what Bayesian ledgers would look like.
On reviewing your previous posts, your own point seems to be something like: Look, we can change the hypothetical to drive down the marginal cost of providing this good or service to practically zero. The lower the marginal cost, the larger the marginal profit on any given sale. That HAS TO BE important! Businesses live or die based on their margins for each sale. We can even drive the marginal cost down so close to zero that each transaction isn’t even worth recording on the ledgers.
I don’t disagree with any of that. I think it’s a valid perspective. But I don’t think it’s “tricker” either. It’s taking the idea of low marginal costs and turning the knob to 11… er… or 0, actually.
EDIT: In fact, one of the primary uses of High-Energy Hypotheticals, which turn the knob to 11, is that blowing up the nature of the problem can make the problem less tricky, rather than more so.
We might be able to push this hypothetical even further, the marginal cost even closer to zero and the good non-rival:
The thief steals 100 dollars from an online music store, then makes a digital music purchase of some albums owned outright by that store, with no royalties to be paid. I don’t know enough about computers to know the marginal strain on the servers for handling one more purchase transaction and series of downloads, but it has to be peanuts compared to the fixed cost of keeping the system running.
If another customer wants to buy the same music five minutes later, they will be able to purchase it. There are no inventory issues, no chance of the good purchased being the last of its kind in the store. One thief’s purchase will have zero effect on any future purchases.
This is an interesting way to think about the problem. But, again, I don’t think it’s “trickier” whether or not the accountants are going to record the cost. What the accountants do doesn’t ultimately matter, even if their language is useful. Either the cost exists, or it doesn’t.
If the thief steals 100 and then immediately purchases 70 dollars of music whose marginal cost of downloading is extremely close to 0, we viewers of the hypothetical – from our godlike perspective – can say that the two interactions of the thief with the store netted to an amount indistinguishably close to 30 dollars, even though the accountants won’t know that.
In your scenario #2, where a non-thief is purchasing the shirt, the store recognises a profit. You state that scenarios #1 and #2 are the same. Therefore, in scenario #1, the store should also be recognising a profit.
Furthermore, you’d agree that the store makes more profit in scenario #2 than in scenario #3, correct? Where does that profit disappear from, becuase it’s the thief making the purchase instead?
What you should be arguing is that the second sentence in the riddle from the OP is a red herring.
Under your first two scenarios, the store would have sold all 200 shirts whether the thief purchased the shirt or not. Therefore the purchase by the thief shouldn’t even be considered when calculating the store’s loss. It’s the entire transaction that should be ignored, not the profit from the transaction.
The profit disappears because in scenario #3 they sell fewer shirts, 199 as opposed to 200 in #1 and #2.
Uh, yes. That was my point. Just to be clear, are you agreeing with me, or trying to contradict me, because you’re saying the same thing as me.
Most people, when thinking about the profit a store makes from the sale of an item, think that the profit is equal to the price of the item minus what it cost the store. Several posters in this thread, including me, used that paradigm in explaining their view towards the answer to that riddle. It makes sense to say that the store lost $90, $30 in cash and $60 which was the store’s cost for the item. The $10 difference between the $90, and the $100 the thief originally stole, is the $10 profit the store made on the sale to the thief. It’s trickier to say that the store only lost some neglibible amount over $30, $30 in cash and some small amount of item components that they don’t keep track of for individual items. Or indeed, as in your online music store example, an item where there is no discernable direct cost. The idea that the store only lost $30 because they sold an item that had no value seems counterintuitive. It then requires an understanding of inventory value, and also the understanding that cost and inventory value are not the same thing. That’s where the accounting perspective comes in. It doesn’t mean that the costs don’t exist, just because they aren’t accounted for. It just means they can be ignored for the transactions in the riddle that are being evaluated.
doesn’t @Broomstick work at a grocery store? maybe she can explain how this would work in real life
If someone considers both transactions in the riddle, the theft and the item purchase, then they have to consider the profit the store made on the sale in determining the store’s loss.
The question is whether the thief bought the shirt because he had $100 after the theft. If the thief was always going to buy the shirt, and the theft was just opportunistic, then the shirt purchase shouldn’t be considered in the loss calculation. That additional piece of information, that the thief was always going to buy the shirt turns the purchase into a red herring since it’s unrelated to the theft.
Your scenario, where there were a limited number of shirts for sale and it was inevitable that all shirts would be sold is a different way of stating that the sale is unrelated to the theft.
I suppose a better way to answer the riddle is to say that it depends on whether an additional item was purchased as a result of the theft. If no, then the store’s loss is the $100 from the theft. If yes, then the loss is $100 minus the profit from the additional sale.
The disagreement I stated earlier is with anyone who thinks that there was an additional sale as a result of the theft, but that the profit from the additional sale doesn’t matter in calculating the store’s loss.
I worked for many years in Accounting for a retailer (and many more years in Finance)
On the accounting books the loss would be $30 plus the cost to us of the item, not just what we paid the manufacturer or distributor for it, but including the cost of warehousing it, delivering it to the store.
It happens in two steps. For this example let’s say that the wholesale cost of the item was $50 and it cost $3 to get it to the store.
When the register is counted down it will be $100 short because the theft of the $100 in cash was not recorded. It will just fall into an account called “Cash Register Shortages”
When the item is sold to the thief we will record:
+$70 Sales
-$50 Cost of Goods Sold
-$3 Capitalized Warehousing & Transportation expense
For a gross margin of $17
So the total loss is the $100 Cash Register Shortage less the $17 gross margin on the sale.
This assumes there is a “perpetual inventory system” in place. If there is a different inventory accounting system, the loss will actually be almost identical.
There is no difference if the item is fungible or replaceable.
There is a potential loss of goodwill (lower case g) if a “real” customer comes in and wanted to buy that item but was pre-emoted by the thief. But that is speculative.
It’s a lot more than 100 dollars.
The store saw that the cash register was 100 dollars short. They looked at the video and spent time and money trying to track down the thief.
They also saw that the cashier had opened the drawer and wasn’t paying attention, allowing the thief to take the money. The cashier was fired and there were expenses for firing, recruiting for a replacement, hiring costs and training costs for the new cashier.
Most people, when thinking about the profit a store makes from the sale of an item, have thoughts that make relatively little sense on any level.
They don’t know how to think about fixed vs variable costs, don’t know how to distinguish sunk costs from recoverable fixed costs, don’t know about intrinsic or extrinsic margins, don’t know the relationship between average and marginal costs, don’t know how to account for the opportunity cost of the resources being allocated toward any given production, don’t know how to account for the risk of allocating resources toward any given production and how that risk influences the opportunity cost.
Accountants in particular are howlingly indifferently to any real cost that doesn’t show up in a receipt, which means they regularly miscalculate the real cost. This is not a criticism of their profession. It’s simply not their job. It’s not what they are paid to do.
That’s a strangely arbitrary level of analytical granularity.
One you zoom in to the level of fineness to distinguish between cost and inventory value, then there is no particular reason to stop right there and say that’s good enough. The entire point of zooming in to that level in the first place is to try to object to the original answer of “100 dollars”, because it doesn’t take relevant information into account.
Well okay. Sure. That’s a valid way of looking at it.
But then to turn around and say “eh that particular detail doesn’t matter because accountancy” is just bizarre. Either the details matter or they don’t. If the details of the purchase don’t matter, then “100 dollars” is a perfectly satisfactory answer to the riddle. After details start mattering, then they all start to matter. I personally mentioned the “hassle” of dealing with a missing hundred, and now the latest post just above this one goes into more depth about that.
This problem is interesting not because there is a pat answer, but because there are many different ways to approach it.
There is no one correct level of magnification. That’s part of the point.