Lesson 6 Inventory management 英文管理会计课件 Management Accounting

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Topic 1: Inventory management and EOQ
Economic order quantity Model
Economic order quantity (EOQ)
= 2PD/C
D = 8,000 pairs of the shoes P = ￥40 per order C = ¥1200 ÷ 8000 + (12% × ¥60)
3. Carrying Costs
the costs that arise while holding inventory of goods for sale.
costs associated with storage the opportunity cost of the investment tied up in
placed (not necessarily the EOQ) D = Demand in units for specified period C = Relevant carrying costs of one unit in stock for the
time period used for D
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Topic 1: Inventory management and EOQ
Major categories of costs associated with inventory management
➢ Managing inventories to increase net incomeFra Baidu bibliotekrequires effectively managing costs that fall into these five categories: 1.Purchasing Costs 2.Ordering Costs 3.Carrying Costs 4.Stockout Costs 5.Quality Costs
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Topic 1: Inventory management and EOQ
Major categories of costs associated with inventory management
1. Purchasing Costs
the cost of goods acquired from suppliers, including freight
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Topic 1: Inventory management and EOQ
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Topic 1: Inventory management and EOQ
Major categories of costs associated with inventory management
5. Quality Costs
the costs that result when features and characteristics of a product or service are not in conformance with customer specifications. These costs include:
– such as supermarkets, large retail stores like WalMart, and manufacturing companies like Mazda or Dell Computers,
MegaLoMart
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Topic 1: Inventory management and EOQ
Order too little, and the company will be placing frequent orders and experiencing stockouts.
The Economic Order Quantity (EOQ) is a decision model that minimizes combined ordering and carrying costs.
inventory
4. Stockout Costs
the costs that result when a company runs out of a particular item for which there is customer demand (stockout) and the company must act quickly to meet the demand or suffer the costs of not meeting it
= (8,000 ÷ 295) × ¥40 + (295 ÷ 2) × ¥7.35
= ￥1,085＋ ￥1,085
= ￥2,170
The number of deliveries for each time period would be as follows:
D/EOQ = 8,000 ÷ 295 = 27.11, or 28 deliveries.
orders, and matching invoices received, purchases orders
and delivery records to make payments
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Topic 1: Inventory management and EOQ
Major categories of costs associated with inventory management
Where TC = The total ordering (or setup) and carrying costs P = Relevant ordering costs per purchase order (or the
cost of setting up a production run) Q = The number of units ordered each time an order is
1. Prevention 2. Appraisal 3. Internal Failure 4. External Failure
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Topic 1: Inventory management and EOQ
The Appropriate Inventory Policy
Two Basic Questions Must be Addressed
Lesson
6
Inventory management
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Topic 1: Inventory management and EOQ
Learning Objective
➢ Make recommendations based on the calculation of total annual relevant costs, economic order quantity, re-order points, and safety stock levels.
➢ Required reading ➢ Chapter 20, pages 560-566.
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Topic 1: Inventory management and EOQ
Traditional Reasons for Carrying Inventory
1. To balance ordering or setup costs and carrying costs.
The first decision in managing goods for sale is to determine how much of a given product should be ordered.
Order too much, inventory becomes obsolete and the company is saddled with large carrying costs.
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Topic 1: Inventory management and EOQ
Inventory Management
➢ For operations inventory represents the largest single cost, and can also be a source of competitive advantage — not only through the product itself, but also through the use of efficient distribution channels.
2. To satisfy customer demand. 3. To avoid shutting down manufacturing
facilities because of machine failure, defective parts, unavailable parts, or late delivery of parts. 4. To buffer against unreliable production processes. 5. To take advantage of discounts. 6. To hedge against future price increases.
✓ How much should be ordered or produced?
✓ When should the order be placed or the setup be performed?
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Topic 1: Inventory management and EOQ
Economic Order Quantity
choose the inventory quantity per order to minimize costs
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Topic 1: Inventory management and EOQ
Ordering & Carrying Costs
Total Costs = Ordering costs + Carrying costs TC = PD/Q + CQ/2
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Topic 1: Inventory management and EOQ
Ordering & Carrying Costs Illustrated
EOQ Illustration
Costs
0 25 50 75 100 125 150 175 200 225 250 275 300 325 350 375
= ¥0.15 + ¥7.20 = ¥7.35
EOQ = 2 ×8000×40÷7.35 = 295 pairs of the shoes
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Topic 1: Inventory management and EOQ
Economic order quantity Model
Total Costs = Ordering costs + Carrying costs TC = PD/Q + CQ/2
Inventory Management
➢ Inventory Management is planning, coordinating, and controlling activities related to the flow of inventory into, through, and out of an organization
2. Ordering Costs
the costs of placing and receiving an order
preparing and issuing purchase orders, receiving and inspecting the items included in the
14,000 12,000 10,000 8,000 6,000 4,000 2,000
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Annual relevant ordering costs
Annual relevant carring costs
Annual relevant total costs
Order Quantity in units