Chapter 16 Assets: Inventory and Operations Management

Optimum stocking level Pg. 521

Also known as reorder point. 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.

Cost of owning Pg. 530

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

point-of-sale (POS) system Pg. 526

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

Supply chain Pg. 541

Like the value 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.

Equipment Pg. 530

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

Accounts receivable Pg. 520

Money owed to your business by customers who purchased your product on credit.

Outsourcing Pg. 539

Outsourcing comprises obtaining a needed business process from a firm that is independent of the entrepreneur's business.

Inventory Pg. 522

Products that are held for sale to customers.

Quality Pg. 538

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

Efficiency Pg. 538

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

Inputs Pg. 537

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

periodic inventory Pg. 525

The process of physically counting business assets on a set schedule.

Replacement cost Pg. 530

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

Property Pg. 530

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

Plant Pg. 530

A general term for the facilities of a business.

Outflow Pg. 534

Funds being paid to others by the firm.

Payback period Pg. 531

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

Book value Pg. 528

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 Pg. 530

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

Disposal value Pg. 528

The net amount realized after subtracting the costs of getting rid of an asset from its selling price.

just-in-time inventory Pg. 525

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

Whole of life costs Pg. 530

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

Safety stock Pg. 524

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

Physical inventory Pg. 529

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

Operating lease Pg. 534

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

Best practices Pg. 541

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

Straight line for a useful life of 10 years Pg. 532

Depreciation is computed using a straight line method over 10 years, so an asset would lose 10% of its value each year.

Bar coding Pg. 526

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.

Replacement value Pg. 528

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

Fair market value Pg. 528

The price at which goods and services are bought and sold between willing sellers and buyers in an arm's -length transaction.

Feedback Pg. 538

The process of communicating within or to the organization about how the outputs worked or were received.

Capital budgeting Pg. 531

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

Operations Pg. 537

The processes of transforming materials, labor, and energy into goods or services.

microinventory Pg. 525

The purchase of inventory only after a sale is made; very typical with Internet firms

Lock box Pg. 521

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.

Factoring Pg. 522

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

arm's length transaction Pg. 528

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) Pg. 531

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.

Economic order quantity (EOQ) Pg. 523

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

Perpetual inventory Pg. 525

A system of recording the receipt and sale of each item as it occurs.

Capital assets Pg. 527

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

Cost of disposition Pg. 530

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

Inventory valuation Pg. 529

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

Pledging receivables Pg. 522

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

Productivity Pg. 538

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

Outputs Pg. 538

The service or product that is produced for sale.

Acquisition cost Pg. 530

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

Capital lease Pg. 534

A lease in which at the end of the lease period the asset becomes the property of the lessee, possibly with an additional payment.

pull-through system Pg. 525

A term for just-in-time inventory systems in which product is ordered and replaced into production only after a sale has been completed.