Managing Inventories to Increase Net Profit Requires Companies to Effectively

question 52

Essay

Managing inventories to increase net profit requires companies to effectively manage costs associated with goods for sale.
Required:
Classify the below listed items as either Purchasing Costs,Ordering Costs,Carrying Costs,Stockout Costs,Costs of Quality or Shrinkage Costs.
$$\begin{array} { | l | l | } \hline\quad\quad\quad\quad\quad & \text { a. costs of obtaining purchase approvals } \\\hline & \text { b. costs resulting from embezzlement by employees } \\\hline & \text { c. internal failure costs } \\\hline & \text { d. coportunity cost of the investment tied up in inventory } \\\hline & \text { e. spoilage of stored items } \\\hline & \text { f. costs of lost sales as a result of not having an iten requested } \\& \text { by a customer } \\\hline& \text { g. costs of incoming freight } \\\hline & \text { h. costs of matching invoices received to the items and the } \\\hline & \text { i. curchase orders } \\\hline &\text { i. costs of wages for work-in-process inspections } \\\hline\end{array}$$
a.costs of obtaining purchase approvals
b.costs resulting from embezzlement by employees
c.internal failure costs
d.opportunity cost of the investment tied up in inventory
e.spoilage of stored items
f.costs of lost sales as a result of not having an item requested by a customer
g.costs of incoming freight
h.costs of matching invoices received to the items and the purchase orders
i.costs of wages for work-in-process inspections
j.costs that result from clerical errors

Learn about the financial management practices in service companies versus manufacturing companies.

Understand the implications of activity variances on employee salaries and wages.

Analyze budget variances in healthcare settings and distinguish between spending and activity variances.

Interpret the effects of activity variances on revenue forecasts.

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Definitions:

Internal Rate

The discount rate at which the net present value of all cash flows from a particular project or investment equals zero, used in evaluating the profitability of investments.

Accept

To agree to take or receive something offered.

Profitability Index

A financial tool used to evaluate the desirability of an investment, calculated by dividing the present value of future cash flows by the initial investment.

Positive NPV

A scenario in which the net present value of a project's cash inflows exceeds its cash outflows, indicating profitability.