Business Administration - Accounting & Financial Planning FIN401 Lecture Notes - Lecture 7: Finished Good, Total Order, Electronic Data Interchange
21 Jan 2018
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Inventory is divided into 3 categories: raw materials, work in progress (wip) or unfinished goods. There are 2 basic costs associated with inventory: ordering costs, carrying costs. Optimum level of inventory will satisfy customer demand / production requirements while minimizing ordering and carrying costs. Producing the same (equal) amount each month. Producing a different amount each month (based on the. Order costs: shortages, damages, write-offs of obsolete stock, purchasing, systems, receiving. Interest on funds tied up in inventory. Cost of warehouse space, insurance premiums and material. Implicit cost associated with the risk of obsolescence and handling expenses. perish-ability: ordering costs. C = carrying cost per unit in dollars; C = carrying cost per unit in dollars. Extra inventory the firm keeps in stock in case of. Management decision based on risk of stock out, desired level of service: assuming that; The inventory carrying costs will now increase by .
