SEMIFINALS 1 Flashcards
l is a deterministic model that calculates the ideal order
quantity given specified demand, ordering or setup costs, and carrying costs
EOQ Model
(economic Order Quantity)
is the quantity to be ordered, which minimizes the sum of Ordering costs and Carrying Costs
EOQ Model
Types of ordering cost
Transportation
Administrative costT
Types of Carrying cost
Storage costs
Interest Costs
Spoilage
Insurance Costs
Storage Costs
Taxes
Labor Costs
Obsolescence Cost
Shrinkage Cost
is ordered every time there is an order
fixed quantity
Are unaffected by the quantity ordered
Purchasing costs
lead-time is known with certainty
Purchase Order
is always maintained to avoid stockout
Adequate Inventory
The cost of the money used to purchase the
inventory.
Capital Cost
The cost of renting or owning a warehouse to store
the inventory.
Storage Cost
The cost of insuring the inventory against damage
or loss.
Insurance Cost
The taxes paid on the value of the inventory.
Taxes
The cost of labor associated with receiving, storing, and
picking inventory.
Labor Cost
The cost of inventory that becomes obsolete
or unsalable.
Obsolescence Cost
The cost of inventory that is lost or stolen.
Shrinkage Cost
Total Carrying cost Formula
Total Carrying cost = Sum ofall carrying cost/ Total Value of Inventory x 100
Number of ways to reduce Carrying costs
Reduce Inventory Levels
Improve Inventory Management Practices
Negotiate Better Terms with Suppliers
Outsourcing Storage And Logistics
Current Asset financing funds Includes:
Bank loans
Credit from suppliers
accrued liabilities
Long-term Debt
Common Equity
Automatically obtained when a firm purchases goods or services on credit from a supplier.
Trade Credit
credit received during the discount period.
Free Trade Credit
Credit Taken in excess of free trade credit
Costly Trade Credit
Represent liabilities for services that have been provided to the company but have not yet been paid for.
Accruals
Customers’ advance payments or deposits for goods or services that will be delivered at some future date
Deferred Income
The most desirable set of terms are those that result in the lowest cost of borrowing.
Commercial Bank Loans
- agreement between a bank and a borrower indicating the maximum amount of credit the bank will extend to the borrower
Line of Credit
- a formal line of credit. Similar to an informal line of credit but this makes the bank legally obligated to honor a revolving credit agreement, and it receives a commitment fee.
Revolving credit agreement
Regular Interest Rate Formula
Interest / Borrowed Amount
Discounted Interest Rate Formula
Interest Rate / Borrowed amount - Interest
Effective Interest Rate Formula
Interest / Borrowed amount - interest - CB
Short-term, unsecured note payable issued in large denominations by major companies with excellent credit ratings.
Commercial Paper
Maturities usually do not
exceed 270 day
Commercial Paper
Effective Annual Interest Rate Formula
Interest Cost per period / Usable Loan Amount
