Chapter 5 | Inventory Management

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Work in Process

(also known as goods in process) — represents raw materials in the process of being transformed into a finished product.

Inventory

A company's __________ is one of its most valuable asset.

Fast-Moving (F-items):

Are those that have a high consumption rate or turnover. These items are typically high in demand and sell quickly, resulting in frequent stock replenishment. They often account for a significant portion of sales and revenue.

Slow-Moving (S-items):

Are those with a moderate consumption rate or turnover. These items are not in as high demand as F-items but still have a steady, albeit slower, consumption rate.

Non-Moving (N-items):

Are those with very low or negligible consumption rates. These items remain in inventory for a long time without being sold or used.

Liability

At the same time, inventory can be thought of as a ________.

Carrying cost

Cost of holding an item in inventory

Ordering cost

Cost of replenishing inventory

Independent

Demand for item used by external customers.

Dependent

Demand for items used to produce final products.

Overhead analysis

Includes analyzing the indirect costs of the business and overhead costs that may be included in the costs of inventory. Rent, utilities, and other costs can be recorded as part of inventory costs in some cases.

Reconciliation

Includes solving discrepancies that are found in an inventory audit. Errors may be re-checked and reconciled on financial records.

Current asset

Inventory represents a ______________ since a company typically intends to sell its finished goods within a short amount of time, typically a year.

Matching

Involves matching the number of items and the cost of inventory shipped with financial records. Auditors may conduct matching to verify that the right amounts were charged at the right time.

ABC Analysis

Is a basic analytical management tool which enables top management to place the effort where the results will be the greatest.

The Minimum Safety Stock method

Is an approach to inventory management that involves calculating and maintaining a minimum level of safety stock to mitigate the risk of stockouts or shortages.

The Economic Order Quantity (EOQ)

Is an inventory management system that ensures a company orders the right amount of inventory that meets the demand for the product.

The FSN (Fast-Slow-Non-moving) analysis

Is an inventory management technique used to classify and manage items based on their consumption patterns and velocity of movement within a company's inventory.

Safety stock

Is the extra inventory kept on hand to account for variations in demand and lead times, and it acts as a buffer to ensure that you can meet customer demand even when unexpected disruptions occur.

Inventory Auditing/Auditing

Is the process of verifying that the financial records of an entity are accurate and fairly represented. Transactions in financial records must fairly represent the entity's financial positioning and actual operating activities.

Days Sales in Inventory (DSI)

Sometimes known as inventory days or days in inventory, is a measurement of the average number of days or time required for a business to convert its inventory into sales.

Fast-moving, Slow-moving, and Non-moving.

The FSN method classifies items into three categories:

1. Purchasing inventory 2. Storing inventory 3. Profiting from inventory

The basic steps of inventory management include: (1) (2) (3)

Just-in-Time Management (JIT)

The method allows companies to save significant amounts of money and reduce waste by keeping only the inventory they need to produce and sell products.

Inventory Management

The process of ordering, storing, using, and selling a company's raw materials, components, and finished products.

Reorder point

The_______________ is the level at which you need to reorder chocolate chips to avoid a stockout during the lead time.

Materials requirement planning (MRP)

This inventory management method is sales-forecast dependent, meaning that manufacturers must have accurate sales records to enable accurate planning of inventory needs and to communicate those needs with materials suppliers in a timely manner.

The perpetual system

This system keeps track of inventory balances continuously, with updates made automatically whenever a product is received or sold.

The periodic inventory system

This system uses an occasional physical count to measure the level of inventory and the cost of goods sold.

Safety stock

To reduce the likelihood of a stockout, it becomes necessary to carry ___________.

1. Level of Customer Service 2. Cost of Ordering and Carrying Out Inventories

What are the 2 Objectives of Inventory Control?

Dependent and Independent

What are the 2 forms of demand?

Inventory management

_______________, a critical element of the supply chain, is the tracking of inventory from manufacturers to warehouses and from these facilities to a point of sale

Finished goods

are completed products readily available for sale to a company's customers.

Raw Materials

represent various materials a company purchases for its production process. These materials must undergo significant work before a company can transform them into a finished good ready for sale.

Merchandise

represents finished goods a company buys from a supplier for future resale.

Shortage cost

temporary or permanent loss of sales when demand cannot be met

Maintenance and Repairs Inventory

those materials needed to maintain an equipment.


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