Chapter 15 - Assets: Inventory and Operations Management

Arm's length transaction

a business deal where the parties have a prior relation of affiliation, but the business is conducted as if they were unrelated

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

Physical inventory

a count of all the inventory being held for sale at a specific point in time

Straight line for a useful life of 10 years

a depreciation method where 10% of the value is deducted each year

Leasing

a formal agreement, reduced to writing, that specifies the term and conditions that must be met to allow one entity to use a specified asset (or assets) of the other

Property

a general term for real estate, but can also be applied as a legal term for anything owned or possessed

Lock box

a locked receptacle for money, the keys to which are not available to those who physically handle the receptacle; a common example 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 the person paying for the lease

Quality

a product's or service's fitness for use as measured by 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 that minimizes 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

Best practices

activities identified by authoritative bodies as examples of optimal ways to get things done in a particular industry, profession or trade. Bar codes can then be scanned and recognized by others

Optimum stocking level

also knows as the reorder point, is the amount of inventory that results in the minimum cost, when considering the cost of lost sales due to running out of stock, the number of units sold per day, and the number of days required to receive inventory

Renting

an agreement between two entities that allows one to use assets of the other in return for a specified payment or series of payments

Safety stock

an amount of inventory carried to assure that you will not run out of inventory due to fluctuating levels of sales

Capital assets

assets that are expected to provide economic benefits for periods of time greater than one year

Outsourcing

contracting with an external partner company to do a portion of your business

Cost of owning

costs incurred in obtaining, financing, insuring, taxing, or tracking the asset

Costs of disposition

costs incurred in the activities necessary to get rid of the asset

Inventory valuation

determination of the amount of assets held by the firm for sale or production

Outflow

funds being paid to others by the firm

Plant

general term for the facilities of a business

Pledging receivables

giving a third party legal rights to debts owed your business in order to provide assurance that the money will be repaid

Point of sale (POS) system

hardware/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

Inputs

materials, labor and energy put into the production of a good or service

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 product or its package

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 the steps in a process

Payback period

the amount until a business earns back the funds 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 cost

the cost incurred to replace one asset with an identical asset

Replacement value

the cost incurred to replace one asset with an identical asset

Book value

the difference between the original cost of an asset and the total amount of depreciation expense that has been recognized to date

Supply chain

the line of distribution of a product from its start as materials outside the target firm, to its handling in the target firm, to its handing by sellers into the hands to the customer

Disposal value

the net amount realized after subtracting the costs of getting rid of an asset from its original 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 unrelated willing sellers and buyers

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 in to goods or services

Microinventory

the purchase of inventory only after a sale is made

Productivity

the ratio measure of how well a firm does in using its inputs to create outputs; outputs divided by inputs

Procedure

the series of steps and activities required to complete a process

Outputs

the service or product that is produced for sale

Whole of life costs

the sum of all costs of capital assets, including acquisition, ownership, operation, and disposal costs

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 its first productive use

Cost of operating

those direct costs incurred in using the asset for the purpose for which it was intended