Chapter 20 -  Accounts Receivable and Inventory Management    2005, Pearson Prentice Hall
Accounts Receivable Management <ul><li>Size of Investment in Accounts Receivable </li></ul><ul><li>Percent of Credit Sales...
Accounts Receivable Management <ul><li>Terms of Sale </li></ul><ul><li>Quoted as  a/b net c  , which means “deduct  a%  if...
Accounts Receivable Management <ul><li>Terms of Sale </li></ul><ul><li>Annualized opportunity cost of foregoing a discount...
Accounts Receivable Management <ul><li>Terms of Sale </li></ul><ul><li>Annualized opportunity cost of foregoing a discount...
Accounts Receivable Management
<ul><li>a  360 </li></ul><ul><li>1 - a  c  -  b </li></ul>Accounts Receivable Management x
<ul><li>a  360 </li></ul><ul><li>1 - a  c  -  b </li></ul><ul><li>Opportunity cost of foregoing  3/30 net 60 : </li></ul>A...
<ul><li>a  360 </li></ul><ul><li>1 - a  c  -  b </li></ul><ul><li>opportunity cost of foregoing  3/30 net 60 : </li></ul><...
<ul><li>a  360 </li></ul><ul><li>1 - a  c  -  b </li></ul><ul><li>opportunity cost of foregoing  3/30 net 60 : </li></ul><...
 
Inventory Management <ul><li>Too much inventory is expensive and wasteful. </li></ul><ul><li>Not enough inventory can resu...
Inventory Management <ul><li>Raw materials inventory  - basic materials to be used in the firm’s production operations. </...
Inventory Management <ul><li>Optimal inventory order size : the Economic Order Quantity (EOQ) model: </li></ul>
<ul><li>Optimal inventory order size : the Economic Order Quantity (EOQ) model: </li></ul><ul><li>2SO </li></ul><ul><li>C ...
Inventory Management <ul><li>Q =  inventory order size in units </li></ul><ul><li>C =  cost of carrying 1 unit in inventor...
Example: Inventory Management <ul><li>Q =  inventory order size in units  </li></ul><ul><li>C =  cost of carrying 1 unit i...
Example: Inventory Management
Example: Inventory Management <ul><li>2SO </li></ul><ul><li>C </li></ul>Q*  =
Example: Inventory Management <ul><li>2SO </li></ul><ul><li>C </li></ul><ul><li>2 x 250 x 10,000 </li></ul><ul><li>1.25  <...
Example: Inventory Management <ul><li>2SO </li></ul><ul><li>C </li></ul><ul><li>2 x 250 x 10,000 </li></ul><ul><li>1.25  <...
Order Point Problem <ul><li>Average   EOQ </li></ul><ul><li>inventory   2 </li></ul>=  + safety stock
Upcoming SlideShare
Loading in …5
×

Fm10e ch20

521 views

Published on

Published in: Economy & Finance, Business
1 Comment
0 Likes
Statistics
Notes
  • Be the first to like this

No Downloads
Views
Total views
521
On SlideShare
0
From Embeds
0
Number of Embeds
6
Actions
Shares
0
Downloads
16
Comments
1
Likes
0
Embeds 0
No embeds

No notes for slide

Fm10e ch20

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

×