Ch 2, Module 3

Question 1

What is the goal of working capital management

Answer 1

shareholder wealth maximation

it involves managing cash so that a company can meet its short-term obligations

includes all aspects of the adminstration of cash

Question 2

What inventory valuation method does FIFO use?

Answer 2

Lower of Cost or NRV

Question 3

What inventory valuation method does LIFO use?

Answer 3

Lower of cost or market

Question 4

What inventory valuation method does weighted average use?

Answer 4

Lower of cost or NRV

Question 5

How is market value determined when valuing inventory

Answer 5

median value of the item’s replacement cost , the market ceiling/NRV ,and the market floor

Question 6

Replacement cost

Answer 6

equal to the cost to purchase the inventory on the valuation date

Question 7

Market Celing

Answer 7

net selling price - costs to complete and dispose of inv

Question 8

market floor

Answer 8

market ceiling - normal profit margin

Question 9

how is NRV calculated

Answer 9

= net selling price - costs to complete and dispose of inv (aka market ceiling)

Question 10

how does one calculate the weighted average method

Answer 10

Cost of goods available for sale / #units available for sale = average inventory value assigned to each unit of inventory

Question 11

How is the moving average method caculated

Answer 11

can onlysed be used in a PERPETUAL inventory system

computes the weighted average cost of the inventory after each purchase

= total cost of inv. AFS aver each puchase / total units AFS after each purchase

Question 12

What are the different types of carrying costs

Answer 12

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

(the lower the carrying costs, the more inventory companies are willing to carry)

Question 13

What factors affect the optimal level of inventory

Answer 13

usage rate of inventory per period of time
cost per unit of inventory
cost of placing orders for inv
time required to receive inventory

Question 14

Safety stock

Answer 14

companies maintain safety stock to ensure that manufacturing or customer supply requirements are met

Question 15

What determines the amount of safety stock carried by a company?

Answer 15

• **reliability of sales forecasts
• possibility of customer dissatisfaction resulting from back orders
• stockout costs (cost of running out of inventory) including loss of income, the cost of restoring goodwill with customers, the cost of expedited shipping to meet customer demand
• lead time
• seasonal demands on inventory

Question 16

What is lead time

Answer 16

the time that elapses from the placement to the receipt of an order

Question 17

define reorder point

Answer 17

reorder point is the inventory level at which a company should order or manufacture additional inventory to meet demand and to avert incurring stockout costs

Question 18

how do you calculate for reorder point?

Answer 18

= safety stock + (lead time x sales during lead time)

Question 19

define economic order quantity (EOQ)

Answer 19

it is an inventory model that attempts to minimize total ordering and carrying costs

Question 20

define ordering costs

Answer 20

represent the costs of labor associated with order placement.

the costs are driven by order FREQUENCY (rather than quantity per order) and they include the cots of entering the PO, processing the receipt of the in, inspecting the inv to ensure that the goods received are acceptable, and processing of the vendor invoice and consequent pmt

Question 21

what is the EOQ equation?

Answer 21

EOG = square root of (2 x Annual sales in units x Cost per purchase order) / Annual Carring cost per unit

Question 22

Define the just-in-time inventory model

Answer 22

“pull approach”

developed to reduce the lag time between inventory arrival and inventory use.

reduces the need of manufactureers to carry large inventories, but requires considerable degree of coordination between manufacturer and supplier.

Question 23

What is Integrated supply chain management

Answer 23

when a firm AND the entire supply chain (suppliers, producers, distributors, retailers, customers, and service providers) are able to reasonably predict the expected demand of consumers for a product and them plan accordingly to meet that demand.

it is a collaborative effort between buyers and sellers

Question 24

What is the goal of integrated supply chain management

Answer 24

to better understand the needs and preferences of customers and cultivate the relatinship with them.

if the actual demand of the customer is met AND excess supply does NOT exist in the market, the firm will be able to minimize costs all along the supply chain

Question 25

What is the SCOR model and what are the main elements?

Answer 25

Supply Chain Operation Reference

attepts to create a generic model for supply chain analysis (and map out the true “supply chain”)

Plan
Source
Make
Deliver

Question 26

What is included in the plan element of the SCOR model

Answer 26

• **determining the demand requirements (sales forecasts)
• assessing the ability of the suppliers to supply resources
• planning the inventory levels
• etc.

Question 27

What is included in the source element of the SCOR model

Answer 27

once demand has been planned, it is necessary to procure the resources required to meet it

-selecting vendors

Question 28

What is the “make” element in the SCOR process

Answer 28

production process

Question 29

What is included in the deliver element of the SCOR model

Answer 29

activities of getting the finished product into the hands of the ultimate consumer to meet their planned demand

• managing of orders (providing quotes, granting credit, entering orders, etc.)
• forecasting
• pricing
• managin transportation/freight to deliver goods
• shipping products
• labeling products

Question 30

What is the formula for calculating annual cost of a quick payment discount

Answer 30

APR of quick pmt discount = [360 / (pay period 30 - discount period 10) x [ Discount 2 / (100 - discount 2)]

Question 31

Why does a company want to delay disbursements and what are the methods typically used to delay disbursements?

Answer 31

Delaying disbursements means more cash now! If something sudden happens, and you need cash, you have it.

simply defering payments as long as possible

line of credit (bank loan) - a loc extends the company’s trade credit by paying off the company’s trade accounts with borrowed funds and allow the company a longer period to pay back that loan to the bank