B2-M4 Working Capital Management 1 Flashcards

1
Q

what is market ceiling or NRV?

A

SP - costs to complete and dispose

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2
Q

what is market floor?

A

market ceiling - normal profit margin

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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
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4
Q

what happened if gross profit rate is overstated?

A

it will cause COGS understated and ending inventory to be overstated

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5
Q

what are carrying costs?

A
  • storage costs
  • insurance costs
  • opportunity costs of inventory investment
  • lost inventory due to obsolescence or spoilage
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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
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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
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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

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9
Q
A
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