Management Accaunting
CHAPTER 4: MANAGEMENT OF CURRENT ASSETS
MANAGING
MANAGING INVENTORY
EOQ MODEL
Reorder Point
ABC System
Just-in-Time System
EOQ = √2 X S X O / H
S = no of usage per period
Ordering Cost Admin cost to place
O = cost per order and receive order
H = cost of holding the
Holding Cost Variable cost/unit to stocks per period hold the stocks
EOQ =number of unit to order per
THC = O X (S/EOQ) + H X period. (EOQ/2)
ROP = level of stock (in unit) to reach before reorder the stocks.
ROP = Lead time (in days) X
Lead time = no of days it takes from
Usage per day the day we place the order to the day the stocks arrive
Classifying the inventory into 3 categories: A: Highest value, verified daily and closely monitored
B:
Second highest value, monitored weekly.
C: Large no. of stocks but requires low investment; 2-bin technique is adopted. The objective is to minimize the inventory – order the inventory when they are needed.
Need to have good suppliercustomer relationship for this to work. Material
Requirement
Determine what type to order and
Planning
(MRP) when to order them.
System
Who does something, then he or she must do it precisely!
S.A.W~
~Nabi Muhammad S.A.W~
MANAGING
MANAGING ACCOUNT RECEIVABLE
Character:
Reliability
in payment
Capital:
Condition:
High debts or low debts? Process
Process of
Credit
Selection
Can they survive if economic changes?
Capacity:
Capacity:
Collateral:
Do they have cash to pay?
Do they have assets for security?
Credit Standards
• Relaxation of credit selection standards may lead
Relaxation
to higher sales, higher debtors and higher debtors. [Vice-versa]
Credit Terms
• Term of sales: for credit to be extended to buyers.
Term
• Stated as a/n, net c
• Annualized Opp. Cost = [a/(1-a)] x [360/(c-b)]
Cash Discounts
• An incentive for customer to pay earlier.
• Help to reduce bad debts and may increase sales.
• Do CBA to
MANAGING
MANAGING INVENTORY
EOQ MODEL
Reorder Point
ABC System
Just-in-Time System
EOQ = √2 X S X O / H
S = no of usage per period
Ordering Cost Admin cost to place
O = cost per order and receive order
H = cost of holding the
Holding Cost Variable cost/unit to stocks per period hold the stocks
EOQ =number of unit to order per
THC = O X (S/EOQ) + H X period. (EOQ/2)
ROP = level of stock (in unit) to reach before reorder the stocks.
ROP = Lead time (in days) X
Lead time = no of days it takes from
Usage per day the day we place the order to the day the stocks arrive
Classifying the inventory into 3 categories: A: Highest value, verified daily and closely monitored
B:
Second highest value, monitored weekly.
C: Large no. of stocks but requires low investment; 2-bin technique is adopted. The objective is to minimize the inventory – order the inventory when they are needed.
Need to have good suppliercustomer relationship for this to work. Material
Requirement
Determine what type to order and
Planning
(MRP) when to order them.
System
Who does something, then he or she must do it precisely!
S.A.W~
~Nabi Muhammad S.A.W~
MANAGING
MANAGING ACCOUNT RECEIVABLE
Character:
Reliability
in payment
Capital:
Condition:
High debts or low debts? Process
Process of
Credit
Selection
Can they survive if economic changes?
Capacity:
Capacity:
Collateral:
Do they have cash to pay?
Do they have assets for security?
Credit Standards
• Relaxation of credit selection standards may lead
Relaxation
to higher sales, higher debtors and higher debtors. [Vice-versa]
Credit Terms
• Term of sales: for credit to be extended to buyers.
Term
• Stated as a/n, net c
• Annualized Opp. Cost = [a/(1-a)] x [360/(c-b)]
Cash Discounts
• An incentive for customer to pay earlier.
• Help to reduce bad debts and may increase sales.
• Do CBA to