costacctg13e_ppt_ch20

costacctg13e_ppt_ch20 - Inventory Management, Just-in-Time,...

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CHAPTER 20 CHAPTER 20 Inventory Management, Just-in-Time, and Simplified Costing Methods Inventory Management in Retail Organizations Inventory Management is planning, coordinating, and controlling activities related to the flow of inventory into, through, and out of an organization Costs Associated with Goods for Sale Managing inventories to increase net income requires effectively managing costs that fall into
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these five categories: Purchasing Costs Ordering Costs Carrying Costs Stockout Costs Quality Costs Management of Inventory Costs Purchasing Costs – the cost of goods acquired from suppliers, including freight Ordering Costs – the costs of preparing and issuing purchase orders, receiving and inspecting the items included in the orders, and matching invoices received, purchases orders and delivery records to make payments Management of
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Inventory Costs Carrying Costs – the costs that arise while holding inventory of goods for sale. This includes the opportunity cost of the investment tied up in inventory, and costs associated with storage Stockout Costs – the costs that result when a company runs out of a particular item for which there is customer demand (stockout) and the company must act quickly to meet the demand or suffer the costs of not meeting it Management of Inventory Costs Quality Costs – the costs that
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result when features and characteristics of a product or service are not in conformance with customer specifications. These costs include: Prevention Appraisal Internal Failure External Failure The First Step in Managing Goods for Sale The first decision in managing goods for sale is how much to order of a given product Economic Order Quality (EOQ) is a decision model that calculates the optimal quantity of inventory to order under a given set of assumptions
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Basic EOQ Assumptions There are only ordering & carrying costs The same quantity is ordered at each reorder point Demand, purchase-order lead time, ordering costs, and carrying costs are known with certainty Purchasing costs per unit are unaffected by the quantity ordered No stockouts occur EOQ ignores purchasing costs, stockout costs and quality costs EOQ Formula D = Demand in units for specified period P = Relevant ordering costs per
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purchase order C = Relevant carrying costs of
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This note was uploaded on 02/23/2010 for the course ACCT 81802 taught by Professor Ognibene during the Fall '09 term at CSU San Bernardino.

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costacctg13e_ppt_ch20 - Inventory Management, Just-in-Time,...

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