Cost Management

University Bookstore is a nonprofit retail outlet for textbooks, computers, and general merchandise (including trade books, supplies, and university-licensed apparel and gifts). It is located near the main campus of State University and controls the majority of the local market share for new and used textbooks.

Other retail outlets, such as Barnes & Noble, University Drugstore (a private company), and CompUSA,have larger shares of the local market for other items. Tammy Waialua is a full-time accounting student and part-time employee of University Bookstore who recently studied the current chapter on managing constrained resources. She observed that the bookstore's primary constraints are floor and shelf space for fastselling items such as textbooks and market share for slow-selling items such as general merchandise.

Average inventory levels and the most recent year's cost of goods sold in the three departments follow.
Department Average Inventory Annual Cost of Goods Sold
New and used textbooks $1,000,000 $4,000,000
Computers 400,000 1,500,000
General merchandise 1,200,000 1,400,000

Tammy approached her boss, the bookstore's general manager, and suggested that they try to improve its efficiency by managing its constraints more effectively. The general manager thanked Tammy for her concern but assured her that this manufacturing technique was neither needed by nor applicable to the nonprofit bookstore.

a. Explain how University Bookstore's constraints can be both floor space (internal) and market share (external).
b. Is Tammy or her boss correct about the relevance of the Theory of Constraints to the bookstore's operations? Explain.

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