FM10e_ch20
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Transcript of FM10e_ch20
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Accounts Receivable
Management
Size of I nvestment in Accounts Receivable
Percent of Credit Sales to Total Sales
Level of Sales
Terms of Sale
Quality of Customer Collection Efforts
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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.”
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Accounts Receivable
Management
Terms of Sale
Annualized opportunity cost offoregoing a discount:
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x
Accounts Receivable
Management
Terms of Sale
Annualized opportunity cost offoregoing a discount:
a 3601 - a c - b
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Accounts Receivable Management
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a 360
1 - a c - bx
Accounts Receivable Management
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a 360
1 - a c - b
Opportunity cost of foregoing 3/30 net 60:
x
Accounts Receivable Management
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a 360
1 - a c - b
opportunity cost of foregoing 3/30 net 60:
.03 360
1 - .03 60 - 30x
x
Accounts Receivable Management
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a 360
1 - a c - b
opportunity cost of foregoing 3/30 net 60:
.03 360
1 - .03 60 - 30
= 37.11%
x
x
Accounts Receivable Management
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Inventory Management
Too much inventory is expensiveand wasteful.
Not enough inventory can result
in lost sales.
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Inventory Management
Raw materials inventory - basic materialsto 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.
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Inventory Management
Optimal inventory order size: theEconomic Order Quantity (EOQ)
model:
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Optimal inventory order size: theEconomic Order Quantity (EOQ)
model:
2SO
C
Q* =
Inventory Management
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2SO
C
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
Q* =
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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* =
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Example: Inventory Management
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Example: Inventory Management
2SO
C
Q* =
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Example: Inventory Management
2SO
C
2x250x10,000
1.25
Q* =
Q* =
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Order Point Problem
Average EOQinventory 2
= + safety stock