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FINMAN > P3 > Flashcards

P3 Flashcards

1
Q

PAS 2

A

Inventories

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2
Q

Assets which are held for sale in the ordinary course of business, in the process of production for such sale, or in the form of materials or supplies to be consumed in the production process or in the rendering of services

A

Inventories

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3
Q

Classes of inventory

A

Raw materials inventory
Work in process “
Finished goods “
Supplies

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4
Q

Consist of basic materials purchase from other firms to be used in the production of goods or product

A

Raw materials inventory

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5
Q

Consist of basic materials purchase from other firms to be used in the production of goods or product

A

Raw materials inventory

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6
Q

Consist of partially finished goods requiring additional work before they become wholly completed

A

Work in process inventory

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7
Q

Consist if completely manufactured goods that are not yet sold

A

Finished good inventory

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8
Q

Materials that are regularly used by the company but do not form part of the finished goods sold

A

Supplies

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9
Q

Importance of inventory management

A

Decoupling function
Storing resources
Irregular supply and demand
Quantity discounts
Avoiding stock outs and shortage

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10
Q

If the firm does not store up for a good inventory, there can be many delays and inefficiencies

A

Decoupling function

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11
Q

In a manufacturing process, raw materials can be stored by themselves, or included in the work-in-process or the finished goods inventory

A

Storing resources

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12
Q

When the supply or demand for an inventory item is irregular, storing certain amounts in hand can be important

A

Irregular supply and demand

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13
Q

Purchasing in large quantities can substantially reduce the cost of products; however, this may result to higher cost due to spoilage, damage stock, theft, insurance, so on, and less availability of cash for other investments

A

Quantity discounts

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14
Q

If a company is repeatedly out-of-stock, customers will likely go elsewhere to satisfy their needs

A

Avoiding stock-outs and shortages

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15
Q

Ways in managing invetories

A

Monitor inventory ratios
Maintain inventory at its optimum level
Hedge
Examine the degree of spoilage
Examine the quantity of inventory with respect to sales
Eliminate slow moving inventories
Watch out for inventory risks
Forecast the price of materials needed

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16
Q

Types of inventory cost

A

Ordering cost
Carrying cost

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17
Q

Also known as purchase cost or set up cost, this is the sum of the fixed cost that are incurred each tine an ite is ordered.

A

Order cost

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18
Q

Formula of TOTAL ORDERING COST

A

number of orders× OC (ordering cost per order

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19
Q

Also called holding cost, associated with having the inventory on hand. It is primarily made up of cost related to the inventory investment and storage. For the purpose of the inventory in hand, it should not be included in the carrying cost

A

Carrying cost

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20
Q

EOQ (economic order quantity) formula

A

Carrying cost is the average number of units of inventory for the period×carrying cost per unit

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21
Q

Total Carrying Cost formula

A

(Q or Quantity or EOQ÷2)×CC or carrying cost per unit

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22
Q

Components of the carrying cost

A

Interest
Insurance
Taxes
Storage costs

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23
Q

An essential accounting formula that determines the point at which the combination of order costs and inventory carrying costs is the least

A

Economic order quantity

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24
Q

Results to the most cost-effective quantity to order

A

Economic order quantity

25
Q

Required number of times a firm or company orders in a given period; on the assumption that the inventory will be used at the constant rate throughout the period

A

Optimum numbers of order

26
Q

The inventory level at which an order should be places to replenish the inventory; computed by multiplying the lead time by the normal lead time usage

A

Reorder point

27
Q

Used only under condition of certainty, meaning the lead time and lead time usage don’t fluctuate

A

Reorder point

28
Q

The time it normally takes to receive the delivery of inventory after the order has been placed

A

Lead time

29
Q

Refers to the number of units to be used during the lead time

A

Lead time usage

30
Q

Formula of Reorder Point or ROP

A

Lead time × lead time usage

31
Q

Additional inventory on hand used to cushion uncertainties during the lead time and lead time usage

A

Safety stock

32
Q

Factors to be considered in maintaining safety stocks

A

Demand
Lead time
Cost of stock outs

33
Q

Higher the risk associated with the perceived demand in the inventory, the higher the safety stock to be required by the company

A

Demand

34
Q

The higher the risk of not receiving the goods needed, the higher the risk of stock out or out of stock

A

Lead time

35
Q

Safety stock is maintained to avoid risk of losing sales

A

Cost of stock out

36
Q

Formula to get Reorder point with safety stock

A

(lead time × usage per day) + safety stock

37
Q

What basis the firm may use to determine the required safety stock

A

Maximum usage basis
Frequency distribution basis

38
Q

Firms safety stock is determined by identifying the normal usage during lead time and deducting it from maximum usage during lead time

A

Maximum usage basis

39
Q

Uses a series of historical data sorted into classes with their corresponding frequencies of occurence

A

Frequency distribution basis

40
Q

Statistical tool applied to historical data is used to arrive at the desired level of safety stock

A

Frequency distribution basis

41
Q

Part of the total production concept that often interfaces with a total quality control program

A

Just in time inventory

42
Q

JIT or Just in time program’s 3 basic requirements

A

Quality production that continually satisfies customers requirement
Close ties between suppliers, manufacturers and customers
Minimization level of inventory

43
Q

Requires close cooperation with the vendors regarding the quality of the output and design-for-manufacturing (DFM) issues to assure ease in manufacturing, quality, realibility, and ease of the service which are built into the product from the design stage

A

Lean production

44
Q

As presented in the balance sheet, consist of all current liabilities

A

Short term financing

45
Q

Criteria provided by the revised PAS no. 1 for a liability to be considered current

A

Expected to be settled in the entity’s normal operating cycle
Held primarily for the purpose of being traded
Due to be settled within 12 months after the balance sheet date
Entity does not have an unconditional right to defer the payments of the liability for at least 12 months after the balance sheet date.

46
Q

Advantages of short term financing

A

Easier to arrange
Less expensive
Afford the borrower more flexiblity

47
Q

Disadvantages of short term financing

A

Interest rate fluctuates more often
Refinancing is frequently needed
Delinquent payment may be detrimental to the credit rating to the credit rating of the borrower

48
Q

Sources of the short term financing

A

Trade credit
Stretching payable
Accruals
Short term bank loan
Banker’s acceptance
Commercial finance company loans
Commercial paper
Receivable financing
Inventory financing

49
Q

An agreement between the buyer and the seller

A

Trade credit

50
Q

The buyer received the invoice sent by the seller specifying the goods purchased, the purchase price, the total amount to be paid, and the term of purchase

A

Trade credit

51
Q

Term if purchase is the cheapest way of obtaining a short term loan and is considered to be the largest source if short term funds

A

Trade credit

52
Q

advantages of trade credit

A

Immediately available from suppliers
Collateral is not needed
No interest is charged, although there is an implicit cost if the discount is forgone
Can be easily paid off
Easily to obtain
Trade creditors are usually generous or supportive in the event of financial difficulty

53
Q

Disadvantages of trade credit

A

Possibility of not availing of the discount dus to financial problems
Buyer avails of the discount but at a disadvantage due to lower implicit cost as compared with a higher cost of the bank credit
Not paying within the discount period may lead the firm to a lower credit rating

54
Q

Factors to be considered

A

Market conditions
Financial stability
Competitiveness
Nature of the product
Nature of the demand and supply

55
Q

Formula of average account payable

A

(annual purchase ÷ 360) × credit period

56
Q

Formula cost of discount forgone

A

(discount÷100%) - discount 100%] × (360/ final due date - discount period)

57
Q

Mean paying the obligation later than expected; helps the company reduce the cost of discount

A

Stretching payable

58
Q

Expenses already incurred but not yet paid off by the company; with the discrepancy, the company is able to benefit fron the short term financing

A

Accruals

59
Q

The company has the power to use the funds for other operating activities until such time that it needs to release payment

A

Accruals

FINMAN (6 decks)

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