Inventory of differential (both good And defective) items purchased in a lot for two shops under a single management is considered here. In the primary shop, the lot is received and separated, only good units are sold and shortages are allowed which are backlogged from the good units specially purchased at the beginning of the next cycle. The separated defective units are continuously transferred and sold at a reduced price from the secondary shop. This inventory model is formulated and illustrated numerically for three scenarios depending upon the time periods of the shops. Inventory, deterioration, two shops.