Exam 3 Flashcards
planning coordinating and controlling activities related to the flow of inventory into through and out of an organization
inventory management
managing inventories to increase net income requires effectively managing costs that fall into these six catagories
Purchasing costs ordering costs carrying costs stock out costs quality costs shrinkage costs
the cost of goods acquired from suppliers including freight
purchasing costs
the cost of preparing and issuing purchase orders receiving and inspecting the items included in the orders and matching invoices received purchase orders and delivery records to make payments
ordering costs
the costs that arise while holding inventory of goods for sale this includes the opportunity cost of the investment tied up in inventory and costs associated with storage
carrying costs
the costs that result when a company runs out of a particular item for which there is customer demand and the company must act quickly to meet the demand or suffer the costs of not meeting it
stock out costs
the costs that result when features and characteristics of a product or service are not in conformance with customer specifications
quality costs
cost that result form theft embezzlement and clerical errors
shrinkage costs
is a decision model that calculates the optimal quantity of inventory to order under a given set of assumptions
economic order quantity
EOQ formula
square root of 2 times demand times ordering costs divided by the carrying costs
how are carrying costs calculated
annual return on investment plus the cost of insurance, materials handling, breakage shrinkage, per year
how do you calculate RTC (Relevant total costs)
((D/Q)xP)+((Q/2)xC) P= Ordering costs C=Carrying costs
the quantity level of inventory on hand that triggers a new purchase order
Reorder point
how is the reorder point calculated
number of units sold in a period of time x purchase order lead time
inventory held at all times regardless of the quantity of inventory ordered using EOQ
safety stock
purchasing is the purchase of material s or goods so they are delivered just as needed for production or sales
Just in time purchasing
a means of gathering and using information to aid and coordinate the planning and control decisions throughout an organizations and to guide the behavior of its managers and other employees
management control systems
include explicit rules procedures performance measures and inventive plans that guide the behavior of its managers and incentive plans that guide the behavior of its managers and other employees
formal system
include shared values loyalties and mutual commitments among members of the company corporate culture and unwritten norms about acceptable behavior
informal system
how should management control system systems be evaluated
they should be closely aligned with the company’s strategies and goals
they should also motivate managers and employees
exists when individuals and groups work toward achieving the organization’s goals managers working in their own best interest take long term actions that align with the overall goals of top management
Goal Congruence
is exertions toward reaching goals including both physical and mental actions
effort
means the minimum constraints and maximum freedom for managers at the lowest levels of an organization to make decisions
total decentralization
means maximum constraints and minimum freedom for managers at the lowest levels of an organization to make decisions
total centralization
name the benefits of decentralization
leads to gains from faster decision making
increases motivation of subunit managers
costs of decentralization
in congruent decision making or dysfunctional decision making
