Session 2 - Material Costs Flashcards
What is a buffer inventory level?
The extra amount of inventory held as a contingency in case of an emergancy
What is a reorder level?
The point at which a new order is placed
How to work out the buffer inventory level?
Reorder level - (average usage x average lead time)
How do you work out the re-order level?
(average usage x average lead time) + buffer inventory
How to work out maximum inventory level?
Buffer + Maximum re-order quantity
How to work out maximum re order quantity?
Maximum inventory level - buffer
How to work out the mimimum reorder quantity?
Average usage x average lead time
Name 3 wider issues which need to be considered which may affect the business invenotry calculations?
Needs of the business - If an item is being used less frequently as before, calculations will need to be revised
Obsolescence of inventory - reducing the stock of less popular items
Seasonal variations
How to work out the EOQ?
2 x annual usage x ordering cost / Annual inventory holding cost
Square route answer
How is EOQ useful?
It represents the most efficient level of order to place because it minimises the total cost of ordering and storage
What is the double entry for purchasing materials on credit from a supplier?
Debit - Inventory
Credit - Payables
What is the double entry for the issue of materials to production?
Debit- production
Credit - Inventory
What is the double entry for return of mateirals from production to inventory?
Debit - Inventory
Credit - Production
What method of inventory valuation to apply to the following statement?
Issues from inventory are at a calculated cost?
AVCO
What method of inventory valuation to apply to the following statement?
Permitted by IAS 2
FIFO and AVCO
