BEC 13 Flashcards
What is cycle counting
An inventory tracking procedure
different components of the inventory are counted on a periodic basis
What is safety stock
This is the amount of inventory added to the normal reorder point to provide assurance that there will be enough on hand - incase of larger unexpected orders - etc.
What is economic order quantity
This is the optimal number of units that should be ordered at one time to minimize the total:
Inventory carrying costs &
Cost of ordering inventory
It specifies an amount of inventory to order
What is a payable deferral period
This is when the starting point is the date of the payment not the date of acquisition
It is subtract ed in the calculation of CCC
Under what circumstances will a firm invest in a project
When the Rate of Return exceed the cost of capital needed to finance he project
High risk divisions have higher cost of capital and lower risk division have lower cost of capital
When you use a company wide cost of capital the results are the following:
- High risk divisions will over-invest in new project sand low risk divisions will under-invest in new projects
This is because the level of cost of capital will be lower that the rate of return on higher risk capital investment projects - so they will invest in more high risk - over invest
Low risk project wont meet the minimum threshold so they will be under invested in
What is business risk
This is the risk that profits will fall short of expectations
Businesses with only equity would bear this risk
What is market risk
This is the risk that the value of a bond or loan will decline due to a decline in the aggregate value of all assets in the economy
What are credit default swaps
They are like insurance against the possibility that bond issuers will not make coupon and face payments
they protect you against credit risk
they are NOT very liquid
They Don’t exist for small issues
They protect you from bond defaults
What is absorption costing
The cost of production are added to inventory and expensed only when the inventory is sold
Net income is lower under variable costing than absorption costing
COGS includes costs from previous periods that were added to inventory instead of being expensed in the prior period
These are recognized with goods are sold (in COGS)
What is variable costing
The cost of production are immediately expensed.
COGS include the costs produced in the current period only
Net income is lower under variable costing because you recognize expenses that would otherwise be capitalized
What are the relevant costs when deciding if you are going to replace a delivery van
the purchase price of the new van, the disposal price of old van
if income taxes are ignored then you do not consider the book value of old van or basis of old or gain on sale
The profitability index is a variation on which capital budgeting model
Net Present value
The profitability index is computed by dividing the net present value of an investment alternative by the amount of the initial investment and is a variation of the net present value technique.
the more debt financing a company has
the lower its credit worthiness
What are inputs to the CAPM
Risk free
beta
expected market portfolio rate of return
Which of the following inventory management approaches orders at the point where carrying costs equate nearest to restocking costs in order to minimize total inventory cost?
economic order quantity
