Accounting Ch. 5

Economic order quantity EOQ

D: annual demand for inventory in units O: cost to place on additional order (batch related) C: cost to carry one additional unit in inventory

Bonus

a fringe benefit, or a apart of the company's compensation plan that is contingent on the occurrence of some future event. bonus=(income before bonus- bonus) X bonus rate

pure competition

a large number of sellers produce and distribute virtually identical products and services.

life cycle planning

a pricing strategy based on the estimated total cost of the product over its life.

target pricing

a pricing strategy where the company first estimates the selling price and then subtracts the required markup to determine the target cost.

quantity discount

a reduced purchase price due to volume

Markup

an additional amt over cost that is added to determine selling price. SP=cost + (cost X markup percentage)

EOQ D

annual demand for inventory

EOQ C

cost to carry an additional unit

EOQ O

cost to place an order

piece-rate pay

employee receives compensation based on the number of items completed. ex. the Buckle

bonus base

form of income the bonus rate is applied to. income before bonus and income taxes, income before income taxes or net income.

gross pay

full amount an employee earns. Employer is required to withhold federal income taxes mandated by FICA

JIT (Just in time)

inventory model that is a long-run model based on the principle that inventory should arrive just as needed for production in the quantities needed.

oligopoly

legal constraints are imposed on companies. ex. when a few firms control the types of products and services and their distribution.

lead time

number of days elapsing from the time an order is placed until order is received.

Dumping

occurs when a company sells its products below cost in foreign countries.

price fixing

occurs when a group of companies agree to limit supply and and charge identical (usually high) prices for their goods and services. ex. 1970 OPEC gasoline cartel

monopolistic competition

other companies operate in an environment where many companies produce similar, but not identical, products. Market has large impact but no control over prices.

commission pay

payment for services rendered based on a percentage of revenue generated. variation of piece-rate pay.

bonus rate

percentage the bonus will pay

predatory pricing

practice of selling products below cost in an attempt to drive out the competition, control the market, and hen raise the price.

price gouging

practice of setting an excessively high price with the intent of reaping short-term excessive profits.

Selling margin

selling price minus cost SP-Cost

Skimming pricing

setting an initial selling price high in an attempt to make early profits. it appeals to those individuals who want to be the first to own a product and are willing to pay for it.

penetration pricing

setting an initial selling price low in an attempt to gain a market share. later in the products life cycle, the selling price is increased.

Kanban system

Japanese word meaning visual or signal. Pull system that uses cards to visually signal the need for inventory. ex. raw materials are kept in bins and when they are empty, employees replace the card to indicate a need to replenish the product. associated with the JIT model

daily demand

the amount of inventory needed each business year. daily demand X lead time

reorder point

the inventory level that, when reached, indicates the need to place an order for additional inventory.

stockout costs

the opportunity cost of not having inventory on hand when needed. include the cost of production slowdowns or stoppages and lost sales as well as customer