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  • 1. Chapter 20 - Accounts Receivable and Inventory Management  2005, Pearson Prentice Hall
  • 2. Accounts Receivable Management
    • Size of Investment in Accounts Receivable
    • Percent of Credit Sales to Total Sales
    • Level of Sales
    • Terms of Sale
    • Quality of Customer
    • Collection Efforts
  • 3. Accounts Receivable Management
    • Terms of Sale
    • Quoted as a/b net c , which means “deduct a% if paid within b days , otherwise pay within c days .”
    • Example : 3/30 net 60 means “deduct 3% if paid within 30 days, otherwise pay the entire amount within 60 days.”
  • 4. Accounts Receivable Management
    • Terms of Sale
    • Annualized opportunity cost of foregoing a discount:
  • 5. Accounts Receivable Management
    • Terms of Sale
    • Annualized opportunity cost of foregoing a discount:
    • a 360
    • 1 - a c - b
    x
  • 6. Accounts Receivable Management
  • 7.
    • a 360
    • 1 - a c - b
    Accounts Receivable Management x
  • 8.
    • a 360
    • 1 - a c - b
    • Opportunity cost of foregoing 3/30 net 60 :
    Accounts Receivable Management x
  • 9.
    • a 360
    • 1 - a c - b
    • opportunity cost of foregoing 3/30 net 60 :
    • .03 360
    • 1 - .03 60 - 30
    Accounts Receivable Management x x
  • 10.
    • a 360
    • 1 - a c - b
    • opportunity cost of foregoing 3/30 net 60 :
    • .03 360
    • 1 - .03 60 - 30
    • = 37.11%
    Accounts Receivable Management x x
  • 11.  
  • 12. Inventory Management
    • Too much inventory is expensive and wasteful.
    • Not enough inventory can result in lost sales.
  • 13. Inventory Management
    • Raw materials inventory - basic materials to be used in the firm’s production operations.
    • Work-in-process inventory - partially finished goods requiring additional work before becoming finished goods.
    • Finished-goods inventory - completed products that are not yet sold.
    • Stock of cash - inventory of cash to allow payment of bills.
  • 14. Inventory Management
    • Optimal inventory order size : the Economic Order Quantity (EOQ) model:
  • 15.
    • Optimal inventory order size : the Economic Order Quantity (EOQ) model:
    • 2SO
    • C
    Inventory Management Q* =
  • 16. Inventory Management
    • Q = inventory order size in units
    • C = cost of carrying 1 unit in inventory
    • S = total demand in units over planning period
    • O = ordering cost per order
    2SO C Q* =
  • 17. Example: Inventory Management
    • Q = inventory order size in units
    • C = cost of carrying 1 unit in inventory = 1.25
    • S = total demand in units over planning period = 10,000 units
    • O = ordering cost per order = $250
    2SO C Q* =
  • 18. Example: Inventory Management
  • 19. Example: Inventory Management
    • 2SO
    • C
    Q* =
  • 20. Example: Inventory Management
    • 2SO
    • C
    • 2 x 250 x 10,000
    • 1.25
    Q* = Q* =
  • 21. Example: Inventory Management
    • 2SO
    • C
    • 2 x 250 x 10,000
    • 1.25
    • = 2,000 units
    Q* = Q* =
  • 22. Order Point Problem
    • Average EOQ
    • inventory 2
    = + safety stock