- 32 -
3. Shrinkage Accrual Accuracy Analysis
Dr. Seago believes that the 10-year correlation analysis
demonstrating a correlation between sales and shrinkage with
respect to Target leads to the conclusion that the Divisions'
shrinkage methods4 are theoretically correct methods. Dr. Seago
acknowledges, however, that the next step is to determine whether
those methods were properly applied. He recognizes that a
comparison of the shrinkage verified by physical count with the
shrinkage claimed by petitioner for the taxable year is of
limited significance because the comparison would be of figures
for two different periods. In an attempt to analyze the accuracy
of the Divisions' shrinkage methods and to compare those methods
with respondent's method, Dr. Seago developed a model to
determine taxable year shrinkage. He applied that model to data
for Target during the taxable years that ended in 1983 through
1986.
Dr. Seago believes that, when a physical inventory is taken
at the close of a period that includes portions of 2 taxable
4 It should be noted that Dr. Seago refers to both Target's
shrinkage method and Dayton's shrinkage method as Dayton Hudson's
method, without distinction. Although there are many significant
similarities between the two methods, this Court will evaluate
the two methods independently and refer to the two methods as the
Divisions' shrinkage methods only for convenience and when there
are no relevant distinctions.
Page: Previous 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 NextLast modified: May 25, 2011