Chapter 15 - Assets: Inventory and Operations Management
arm's length transaction
a business deal where the parties have a prior relation or affiliation, but where the business is conducted as if they were unrelated; this approach is done to help guard against potential conflicts of interest
return on investment (ROI)
a capital budgeting equation used to measure the relationship between initial investment and the profits that are expected to be received from making the investment; measured as average annual profits divided by average investment
physical inventory
a count of all the inventory being held for sale at a specific point in time
property
a general term for real estate, but it can also be applied as a legal term for anything owned or possessed
plant
a general term for the facilities of a business
capital lease
a lease in which at the end of the lease period the asset becomes the property of the lessee, possibly with an additional payment
lock box
a locked receptacle for money, the keys to which are not available to those who physically handle the receptacle; a common examples of a lock box is the coin receptacle for parking meters which cannot be opened by the workers who are responsible for collecting the deposited coins
operating lease
a long term rental in which ownership of the asset never passes to the person paying for the lease
quality
a product's or service's fitness for use, measured as durability, reliability, serviceability, style, ease of use, and dependability
economic order quantity (EOQ)
a statistical technique that determines the quantity of inventory that a business must hold to minimize total inventory cost
perpetual inventory
a system of recording the receipt and sale of each item as it occurs
pull through system
a term for just in time inventory systems in which product is ordered and placed into production only after a sale has been completed
supply chain
a way to think about the line of distribution of a product from its starts as materials outside the target firm, to its handling in the target firm, to its handling by sellers, with placement into the hands of customers
best practices
activities identified by authoritative bodies as examples of optimal ways to get things done in a particular industry, profession, or trade
safety stock
an amount of inventory carried to ensure that you will not run out of inventory because of fluctuating levels of sales
outsourcing
contracting with people or companies outside your business to do work for your business
cost of owning
cost incurred in financing, insuring, taxing, or tracking an asset
cost of disposition
cost incurred in the activities necessary to get rid of an asset
straight line for a useful life of 10 years
depreciation is computed using a straight line method over 10 years, so an asset would lose 10 percent of its value each year
inventory valuation
determination of the amount of assets held by the firm for sale or production
outflor
funds being paid to others by the firm
pledging receivables
giving a third party legal rights to debts owed your business in order to provide assurance that borrowed money will be repaid
point of sale (POS) system
hardware and software combinations that integrate inventory management directly into accounting software
equipment
machinery, tools, or materials used in the performance of the work of the business
accounts receivable
money owed to your business by customers who purchased your product on credit
bar coding
obtaining a universal product code number and scan ready visual tag, and printing it on the products of its packaging; bar codes can then be scanned and recognized by others
inventory
products that are held for sale to customers
factoring
selling the rights to collect accounts receivable to an entity outside your business
work instructions
specific guidelines for completing steps in a process
supporting goods
tangible material outcome you get from the service (if there isn't one then the service is pure service and not hybrid)
explicit service
the actual service itself received
optimum stocking level
the amount of inventory that results in the minimum cost, when considering the cost of lost sales resulting from running out of stock, the number of units sold per day, and the number of days required to receive inventory
payback period
the amount of time it takes a business to earn back the funds it paid out to obtain a capital asset
process
the business activities necessary to convert inputs into desired outputs
efficiency
the comparison of productivity ratios to see the extent that an organization has generated more outputs with fewer inputs
replacement value
the cost incurred to replace one asset with an identical asset
implicit service
the customer service associated with receiving the service
book value
the difference between the original cost of an asset and the total amount of depreciation expense that has been recognized to date
cost of operating
the direct cost incurred in using an asset for the purpose for which it was intended
inputs
the materials, labor, and energy put into the production of a good or service
disposal value
the net amount realized after subtracting the costs of getting rid of an asset from its selling price
just in time inventory
the practice of purchasing and accepting delivery of inventory only after it has been sold to the final customer
fair market value
the price at which goods and services are bought and sold between willing sellers and buyers in an arm's length transaction
feedback
the process of communicating within or to the organization about how the outputs worked or were received
capital budgeting
the process of deciding among various investment opportunities to create a specific spending plan
periodic inventory
the process of physically counting business assets on a set schedule
operations
the process of transforming materials, labor, and energy into goods or services
microinventory
the purchase of inventory only after a sale is made; very typical with Internet firms
productivity
the ratio measure of how well a firm does in using its inputs to create outputs; literally, productivity is outputs divided by inputs
procedure
the series of steps and activities required to complete a process
outputs
the services or products that are produced for sale
acquisition cost
the total cost of acquiring an asset, including such costs as purchase price, transportation, installation, testing, and calibrating in order to ready it for the first productive use
replacement cost
the total cost of replacing an asset with an essentially identical asset
supporting facility
where a service takes place