AIS+ch11 - CHAPTER11 TheExpenditureCycle PurchasingandCash...

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CHAPTER 11 The Expenditure Cycle: Purchasing and Cash  Disbursements 1
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LECTURE OUTLINE Expenditure Cycle : Basic business activities and related data  processing operations. The key decisions needed to be made. Information needed to make those decisions. Major threats. Various control procedures for dealing with  those threats.
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Primary Objective of the Expenditure Cycle  To minimize the total cost of acquiring and  maintaining inventory, supplies, and services. Decisions that must be made include: What level of inventory and supplies should we carry? What vendors provide the best price and quality? Where should we store the goods? Can we consolidate purchases across units? How can IT improve inbound logistics? Is there enough cash to take advantage of early payment  discounts? How can we manage payments to maximize cash flow?
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EXPENDITURE CYCLE 3 basic activities: 1. Ordering goods, supplies, and services 2. Receiving and storing these items 3. Paying for these items These activities mirror the activities in the  revenue cycle.
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1. ORDERING GOODS,  SUPPLIES, AND SERVICES Key decisions: identifying what, when, and how  much to purchase and from whom. Weaknesses in inventory control can create  significant problems with this process: Inaccurate records cause shortages. One of the key factors affecting this process is the  inventory control method to be used. Alternate Inventory Control Methods Economic Order Quantity (EOQ) Just in Time Inventory (JIT) Materials Requirements Planning (MRP)
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EOQ -  Traditional approach to managing  inventory Goal:  Maintain enough stock so that production  doesn’t get interrupted. An optimal order size is calculated by minimizing  the sum of several costs: Ordering costs Carrying costs Stockout costs The EOQ formula is also used to calculate  reorder point, i.e., the inventory level at which a  new order should be placed. Other, more recent approaches try to minimize or  eliminate the amount of inventory carried.
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MRP and JIT MRP seeks to reduce inventory levels by improving the  accuracy of forecasting techniques and carefully  scheduling production and purchasing around that  forecast. JIT systems attempt to minimize or eliminate inventory by  purchasing or producing only in response to actual (as  opposed to forecasted) sales. These systems have frequent, small deliveries of 
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AIS+ch11 - CHAPTER11 TheExpenditureCycle PurchasingandCash...

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