B2-M4 Working Capital Management 1 Flashcards
1
Q
what is market ceiling or NRV?
A
SP - costs to complete and dispose
2
Q
what is market floor?
A
market ceiling - normal profit margin
3
Q
when do we use lower of cost or market and lower of cost or NRV?
A
- inventory costed using LIFO or retail inventory method is measured at the lower of cost or market value
- inventory costed using other methods is measured at lower of cost or NRV
4
Q
what happened if gross profit rate is overstated?
A
it will cause COGS understated and ending inventory to be overstated
5
Q
what are carrying costs?
A
- storage costs
- insurance costs
- opportunity costs of inventory investment
- lost inventory due to obsolescence or spoilage
6
Q
what factors determine safety stock?
A
- reliability of sales forecasts
- possibility of customer dissatisfaction resulting from back orders
- costs of running out of inventory (stock-out costs)
- Lead time (time elapses from the placement to the receipt of an order)
- seasonal demands on inventory
7
Q
what factors affect the optimal level of inventory?
A
- usage rate of inventory per period of time
- cost per unit of inventory
- cost of placing orders for inventory
- time required to receive inventory
8
Q
what is primary cost when the economic order quantity (EOQ) model is used for a firm that manufactures its own inventory?
A
production set-up
9
Q
A