Topic Five - Topic 5 - Inventory Management JIT and...

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Topic 5 - Inventory Management JIT and Simplified Costing 20-2 Five cost categories important in managing goods for sale in a retail organization are the following: 1. purchasing costs; 2. ordering costs; 3. carrying costs; 4. stockout costs; and 5. quality costs 20-3 Five assumptions made when using the simplest version of the EOQ model are: 1. The same quantity is ordered at each reorder point. 2. Demand, ordering costs, carrying costs, and the purchase-order lead time are certain. 3. Purchasing cost per unit is unaffected by the quantity ordered. 4. No stockouts occur. 5. Costs of quality are considered only to the extent that these costs affect ordering costs or carrying costs. 20-5 Examples of opportunity costs relevant to the EOQ decision model but typically not recorded in accounting systems are the following: 1. the return forgone by investing capital in inventory; 2. lost contribution margin on existing sales when a stockout occurs; and 3. lost contribution margin on potential future sales that will not be made to disgruntled customers. 20-9 Disagree. Choosing the supplier who offers the lowest price will not necessarily result in the lowest total purchase cost to the buyer. This is because the price or purchase cost of the goods is only one—and perhaps, most obvious—element of cost associated with purchasing and managing inventories. Other relevant cost items are ordering costs, carrying costs, stockout costs and quality costs. A low-cost supplier may well impose conditions on the buyer—such as poor quality, or frequent stockouts, or excessively high inventories—that result in high total costs of purchase. Buyers must examine all the elements of costs relevant to inventory management, not just the purchase price. 20-10 Supply-chain analysis describes the flow of goods, services, and information from the initial sources of materials and services to the delivery of products to consumers, regardless of whether those activities occur in the same organization or in other organizations. Sharing of information across companies enables a reduction in inventory levels at all stages, fewer stockouts at the retail level, reduced manufacture of product not subsequently demanded by retailers, and a reduction in expedited manufacturing orders. 20-12 Just-in-time (JIT) production is a “demand-pull” manufacturing system that has the following features: Organize production in manufacturing cells, Hire and retain workers who are multi-skilled, Aggressively pursue total quality management (TQM) to eliminate defects,
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This note was uploaded on 08/30/2009 for the course BUSINESS ACCT3104 taught by Professor Sandra during the Spring '09 term at École Normale Supérieure.

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Topic Five - Topic 5 - Inventory Management JIT and...

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