Inventory Control

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ACCA F9考试:Inventory Control
1 .Importance
■If inventory is too high;
Inefficient → profit reduced
■If inventory is too low;
Insufficient to satisfy customers → profit reduced.
2. Reasons for Holding Inventory*
■To meet demand by acting as a buffer in times of unusually
high consumption (i.e. to reduce the risk of "stock-outs").
■To ensure continuous production.
■To take advantage of quantity discounts.
■To buy in ahead of an expected shortage or ahead of an
expected price rise.
■For technical reasons (e.g. maturing whiskey in casks or
keeping oil in pipelines).
■To reduce ordering costs.
3 .Inventory Costs
■ Purchase price
■ Holding costs:
⊕cost of capital tied up;
⊕insurance;
⊕deterioration, obsolescence and theft;
⊕warehousing; and/or
⊕stores administration.
■Re-order costs:
⊕transport costs;
⊕clerical and administrative expenses; and/or
⊕batch set-up costs for goods produced internally.
■Shortage costs:
⊕production stoppages caused by lack of raw materials;
⊕stock-out costs for finished goods—anything from a delayed
sale to a lost customer; and/or
⊕ emergency re-order costs.
■ Systems costs—people and computers.