Chapter 20 - Accounts Receivable and Inventory Management
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Transcript of Chapter 20 - Accounts Receivable and Inventory Management
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Chapter 20 -Chapter 20 - AccountsAccounts
Receivable and InventoryReceivable and InventoryManagementManagement
2005, Pearson Prentice Hall
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Accounts ReceivableAccounts Receivable
ManagementManagement
Size of Investment in Accounts ReceivableSize
of Investment in Accounts Receivable
Percent of Credit Sales to Total SalesPercent of Credit Sales to Total Sales
Level of SalesLevel of Sales
Terms of SaleTerms of Sale
Quality of CustomerQuality of Customer Collection EffortsCollection Efforts
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Accounts ReceivableAccounts Receivable
ManagementManagement
Terms of SaleTerm
s of Sale
Quoted asQuoted as a/b net ca/b net c , which means, which means
deductdeduct a%a% if paid withinif paid within bb daysdays,,otherwise pay withinotherwise pay within cc daysdays..
ExampleExample:: 3/30 net 603/30 net 60 meansmeans
deduct 3% if paid within 30 days,deduct 3% if paid within 30 days,
otherwise pay the entire amountotherwise pay the entire amount
within 60 days.within 60 days.
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Accounts ReceivableAccounts Receivable
ManagementManagement
Terms of SaleTerm
s of Sale
Annualized opportunity cost ofAnnualized opportunity cost offoregoing a discount:foregoing a discount:
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x
Accounts ReceivableAccounts Receivable
ManagementManagement
Terms of SaleTerm
s of Sale
Annualized opportunity cost ofAnnualized opportunity cost offoregoing a discount:foregoing a discount:
a 360a 3601 - a c - b1 - a c - b
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a 360a 360
1 - a c - b1 - a c - b
x
Accounts Receivable ManagementAccounts Receivable Management
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a 360a 360
1 - a c - b1 - a c - b
Opportunity cost of foregoingOpportunity cost of foregoing 3/30 net 603/30 net 60::
x
Accounts Receivable ManagementAccounts Receivable Management
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a 360a 360
1 - a c - b1 - a c - b
opportunity cost of foregoingopportunity cost of foregoing 3/30 net 603/30 net 60::
.03 360
.03 360
1 - .03 60 - 301 - .03 60 - 30
= 37.11%= 37.11%
x
x
Accounts Receivable ManagementAccounts Receivable Management
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Inventory ManagementInventory Management
Too much inventory is expensiveToo much inventory is expensiveand wasteful.and wasteful.
Not enough inventory can resultNot enough inventory can result
in lost sales.in lost sales.
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Inventory ManagementInventory Management
Raw materials inventoryRaw materials inventory - basic materials- basic materialsto be used in the firms productionto be used in the firms production
operations.operations.
Work-in-process inventoryWork-in-process inventory
- partially- partially
finished goods requiring additional workfinished goods requiring additional work
before becoming finished goods.before becoming finished goods.
Finished-goods inventoryFinished-goods inventory - completed- completed
products that are not yet sold.products that are not yet sold.
Stock of cashStock of cash - inventory of cash to allow- inventory of cash to allow
payment of bills.payment of bills.
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Inventory ManagementInventory Management
Optimal inventory order sizeOptimal inventory order size: the: theEconomic Order Quantity (EOQ)Economic Order Quantity (EOQ)
model:model:
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Optimal inventory order sizeOptimal inventory order size: the: theEconomic Order Quantity (EOQ)Economic Order Quantity (EOQ)
model:model:
2SO2SO
CC
Q* =
Inventory ManagementInventory Management
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Example: Inventory ManagementExample: Inventory Management
Q =Q = inventory order size in unitsinventory order size in units
C =C = cost of carrying 1 unit in inventorycost of carrying 1 unit in inventory = 1.25= 1.25
S =S = total demand in units over planningtotal demand in units over planning
period =period = 10,000 units10,000 units
O =O = ordering cost per order =ordering cost per order = $250$250
2SO
C
Q* =
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Example: Inventory ManagementExample: Inventory Management
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Example: Inventory ManagementExample: Inventory Management
2SO2SO
CC
Q* =
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Example: Inventory ManagementExample: Inventory Management
2SO2SO
CC
22xx250250xx10,00010,000
1.251.25
Q* =
Q* =
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Example: Inventory ManagementExample: Inventory Management
2SO2SO
CC
22xx250250xx10,00010,000
1.251.25
= 2,000 units= 2,000 units
Q* =
Q* =
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Order Point ProblemOrder Point Problem
AverageAverage EOQEOQinventoryinventory 22
= + safety stock