Chapter 16

Plant

A general term for the facilities of a business.

Lock box

A locked receptacle for money Example: parking meters

Cost of Owning

Cost incurred in financing, insuring, taxing, or tracking an asset.

Stockout Cost

Cost of a lost sale if you run out

Carrying Cost

Cost of keeping stuff in inventory

Ordering Cost

Cost of processing an order

Point-of-sale system

Hardware and software combinations that integrate inventory management directly into accounting software.

Providing credit...

Increases the cost of selling

Managing Accounts Receivable goal

Keep number of bad accounts as low as possible

Equipment

Machinery, tools, or materials used in the performance of the work of the business.

Managing Accounts Receivable goal

Minimize the time that passes between credit sale and when the cash is received

Accounts Receivable

Money that is owed to your business by your customers

Bar Coding

Obtaining a Universal Product Code number and scan-ready visual tag, and printing it on the product or its packaging. Bar codes can then be scanned and recognized by others.

The right amount of inventory is determined by ...

Ordering Cost Carrying Cost Stockout Cost Lead time

Productivity

Outputs / Inputs

Use your receivables in two ways to quickly lay your hands on cash

Pledge receivables as collateral for a commercial loan

Optimum Stocking Level is aka

Reorder Point

Efficiency

The comparison of productivity ratios to see the extent that an organization has generated more outputs with fewer inputs.

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.

Lead Time

Time it takes to receive inventory after it's ordered

Providing credit usually results

higher sales revenue because of increased repeat business

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.

Property

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

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.

Operating Lease

A long-term rental in which ownership of the asset never passes to the person paying for the lease.

Pledging Receivables

Giving a third party legal rights to the debts (cash) owed your business in order to provide assurance that borrowed money will be repaid.

Payback Period

The amount of time it takes a business to earn back the funds it paid out to obtain a capital 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.

Cost of Operating

The direct cost incurred in using an asset for the purpose for which it was intended.

Providing credit...

The firm must replace the "missing" cash

Whole of life costs

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

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.

Replacement Cost

The total cost of replacing an asset with an essentially identical asset.

Use your receivables in two ways to quickly lay your hands on cash

You can sell your receivables to a finance company in a process called factoring

Periodic Inventory

process of physically counting business assets on a set schedule (once a year)

Perpetual Inventory

recording the receipt and sale of each item as it occurs

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 handling by sellers into the hands of customers.

Safety Stock

An amount of inventory carried to ensure that you will not run out of inventory because of fluctuating levels of sales.

Replacement Value

The cost incurred to replace one asset with an identical asset.

Best Practices

Activities identified by authoritative bodies as examples of optimal ways to get things done in a particular industry, profession, or trade.

Factoring

Selling the rights to collect accounts receivable to an entity outside your business.

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

Just-in-time inventory

The practice of purchasing and accepting delivery of inventory only after it has been sold to the final customer.

Capital Budgeting

The process of deciding among various investment opportunities to create a specific spending plan.

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.

Capital Assets

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

Quality

a product's or service's fitness for use, measured as durability, reliability, serviceability, style, ease of use, and dependability.

Return of Investment

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.

Economic order quantity (EOQ)

A statistical technique that determines the quantity of inventory that a business must hold to minimize total inventory cost.

Cost of Disposition

Cost incurred in the activities necessary to get rid of an asset.

Providing credit...

Credit delays receipt of cash

Inventory Valuation

Determination of the amount of assets held by the firm for sale or production.

Providing credit...

Sooner or later a customer will not pay

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.

Productivity

The ratio measure of how well a firm does in using its inputs to create outputs, literally, productivity is outputs divided by inputs.

Outputs

The service or product that is produced for sale.

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.