Module 1 Flashcards
What are the seven rights of purchasing?
obtaining the right material
in the right quantity
for delivery to the right place
at the right time
from the right supplier
with the right service
at the right price
Purchase Price Variance
Purchase Price Variance = (Actual Price – Budgeted Price) × Quantity Purchased
What is Total Cost of Ownership?
Estimate of the expenses associated with buying, using, and disposing of the item
TCO = Acquisition Price + NPVΣ(Ownership + End-of-Life Costs)
Most important purchase right?
Right Supplier
as it affects all other rights
What % of COGS are purchased inputs?
50-80%
Profit Leverage Effect
A measure of how many dollars of additional revenare are needed to have an equal profit impact as a dollar cost reduction
Does saving a dollar in purchasing or increasing sales by 1 dollar matter more to profit?
Most often saving the cost will affect profit more
When someone says that every dollar saved in purchasing goes straight to the bottom line, which of the following are they refering to?
Operating Profit
If costs are 80% of sales (and profit is 20%), what is the amount of extra sales needed to equal $1,500 in purchasing cost savings?
7500
What does ROA equal?
Profit Margin x Asset Turnover
