BU395 Chapter 12: Chapter 12- Inventory Management
Document Summary
Inventory: material, part, or product sitting idle, not being used, usually in warehouse or stockroom, and kept for use or sale in the future. Return of assets: profit after tax / total assets. Inventories represent significant portion of total assets in balance sheet, so reduction in inventories result in significant increase in roa. Inventory influences the income statement through cogs (sum of material, direct labour, indirect labour costs) Costs = beginning inventory + purchases ending inventory (accounting) Management uses value of inventory for decision making high total value of finished goods = management will reduce production and sell some finished goods at discount. Economic order quantity: buying in quantity that exceeds immediate requirements to minimize purchasing, receiving, material handling, and a/p costs need inventory space. Economic production quantity: economical to produce in large quantity. Order/replenishment cycle: consecutive ordrs occurring after some interval of time.
