Material Flashcards
CHAPTER 6
1
Q
Ordering cost
A
- Clerical & administrative cost
- Transport costs
- Production run costs
2
Q
Holding cost
A
- Storage cost
- Interest/finance charges
- Insurance costs
- Obsolescence
- Deterioration
- Spoilage
- Theft
3
Q
Stockout costs
A
- Loss contribution
- Loss future sale
- Loss goodwill
- Production stoppages
- Labour inefficiency costs
- Extra ordering cost
4
Q
Obsolescence
A
Reduction in inventory value due to becoming irrelevant to organisation’s needs
5
Q
Deterioration
A
Reduction in inventory value due to degradation in its qualities
6
Q
Lead time
A
Time between placing and receiving an order for materials
7
Q
Average level formula
A
= Minimum level + (reorder quantity / 2
8
Q
Assumptions of EOQ/ Baumol Model
A
- Holding cost per unit is constant
- Average inventory is held
- Constant purchase price
- Constant demand
- Constant lead time
- Order cost independent of order quantity
- Holding-cost dependent on average inventory
9
Q
Working capital requirement formula (Receivable )
A
= ( Collection period ÷ 12/52/365) x Credit sales
