Chapter 2.2 Flashcards
Acquisition costs
The cost of procuring and receiving the goods
Holding costs
The costs of physically holding the inventory
Liquidity
A solvency measure to determine whether an organisation is able to meet its liabilities (short-term debts) when they come due from net current assets
EDI (electronic data interchange)
The computer-to-computer exchange of business documents in electronic format between business partners. It is the electronic communication of information that was traditionally communicated on paper, such as purchase orders and invoices
ERP (Enterprise resource planning)
Business process management software that uses a system of integrated applications to manage the business and automate many back-office functions
Who values the inventory itself as an asset?
Generally Accepted Accounting Practice (GAAP)
Name 15 ordering or acquisition costs
- Preparing the requisition
- Supplier selection and approvals
- The time and costs of the procurement process
- The IT ordering platform
- Other EDI links to suppliers
- Preparing the purchase order
- The cost of the ERP system time
- Printed stationery
- Progressing or chasing the order
- Receiving and receipting the goods
- The cost of the materials or goods
- Handling
- Inspection or part approval and management of sub-standard goods
- Dealing with mismatched receipts and wrong invoices
- Approval and payment of invoices
What 3 main groups can acquisition costs be summarised in to?
- Preliminary costs
- Placement costs
- Post-placement costs
Preliminary costs
Costs associated with actions before raising the purchase order
Placement costs
The cost of raising the purchase order ad ensuring the supplier receives it
Post-placement costs
The cost after the purchase order has been raised, necessary to get the goods to the requestor and payment to the supplier
Purchase invoice matching system (PIMS)
A system which automatically compares purchase orders with the delivery note and the supplier invoice, automatically matching, approving and paying low-value invoices
Purchasing Card (Procurement card)
Essentially a credit card owned by the company that enables an officer to make low-value purchases without the need for formal requisitions and purchase orders
What model do acquisition costs follow?
The typical procure-to-pay (P2P) model
Name the 8 steps of the P2P process
- Requirement planning
- Request for quotation
- Creation of purchase order
- Goods receipt
- Preparation of goofs receipt
- Creation of payment invoice
- Payment
- Reporting
What adds up to the total cost of acquisition?
Every stage of the P2P process
Holding costs / carrying costs
Costs associated with the storage and handling of physical stock
Name 2 costs associated with storage and handling of the inventory
Holding costs or carrying costs
What are the two types of holding costs
- Costs are related to the value of the goods
- Costs related to the physical characteristics of thi inventory
Name 6 costs related to the value of the inventory
- Financial costs, the interest on the working capital tied up in inventory, which may be he bank borrowing rate or the company’s target for return on capital
- Cost of insurance
- Losses due to product deterioration
- Losses due to obsolescence and redundancy of inventory
- Loses due to theft, accidental damage
- Cost associated with security
Name 6 costs related to the physical characteristics of the inventory
- Storage space
- Power, heat and lighting
- Movement equipment
- Labour costs
- Costs of scrapping and physical disposal of inventory
- Administration costs
Name 3 costs associated with a stockout
- Loss of production output
- Costs of machine downtime and of overheads spread over a reduced level of output
- Costs of any action required to deal with the stockout
Name 4 costs of any action required to deal with the stockout
- Buying from another more expensive supplier
- Paying more for urgent delivery of replacement items
- Switching to another form of production
- Using alternative parts or materials which may incur extra costs due to a need to quality check, sample and approve them
What 3 things may there still be even when the stockout has been remedied
- Loss of customer goodwill through inability to supply or late delivery
- Loss of sales or new orders
- Loss of market credibility
