Working Capital Management (B2:M4-5) Flashcards
amount of inventory a company holds in stock would decrease when (3 situations)
variability of sales decreases
cost of running out of stock decreases
length of time goods are in transit decreases
what does the use of a “draft” do?
delays a cash disbursement and increases payable float
what are some common costs that are not carrying costs?
disruption of production schedules
quantity discounts lost
shipping/handling costs
inspections
what are the 4 stages of the SCOR model?
plan, source, make, deliver
what does the economic order quantity (EOQ) formula assume?
that periodic demand is known
what is the objective of EOQ?
to minimize total inventory cost (ordering and carrying)
the level of safety stock in inventory management depends on what 3 factors?
uncertain sales forecasts
dissatisfaction of customers
uncertain lead times
what is materials requirement planning (MRP)?
inventory management technique that projects inventory levels in order to control the usage of raw material in production. MRP applies to WIP and raw materials
what is the fundamental concept of just-in-time inventory management?
inventory does not add value
what is the formula for calculating reorder point?
safety stock + (lead time x sales per week)
what is the fundamental concept of just-in-time inventory management?
inventory does not add value
what are the 4 methods for converting AR into cash?
collection agencies
factoring
cash discounts
electronic fund transfers
how do you calculate float?
balance of checks outstanding - deposits which have not yet cleared
effective interest rate = ?
interest paid / net proceeds*
*loan - compensating balance
average gross AR = ?
average daily sales x average collection period
