...Student Name: | Topic Reflected on: Inventory | | Date: 3/22/2015 | | Discuss important issues an accountant must consider when accounting for inventory. Make sure you explain why it is an issue.An issue an accountant must consider is whether the goods that are in transit belong to the company in inventory or the customer. This issue is related to ownership of the goods to decide whether a sale has occurred or if it remains in inventory at the end of the period. Accountants must also consider the issue of valuing of inventory. This is an issue because records must be kept consistent when recording inventory so that it is fairly valued in accordance with the accounting method chosen such as, FIFO, LIFO, or weighted average method to determine the value of inventory. The inventory method chosen can results in different amounts for the cost of goods sold. Inventory detail can be an issue as it must be accurate related to FIFO and LIFO so when selling units the correct per price point is used for each method. Shrinkage costs can be an issue if the difference in current inventory costs are drastically different from the physical count. A drastic difference means there is high human error or theft of inventory. Determining which method will affect the income of a company and the taxes a company has to pay can be an issue depending on the company. If a company is trying to pay lower income taxes, the method chosen is directly related to the economic environment. Lower...
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...Inventory management issues Inventory is the lifeblood of the supply chain. It is what flows from node to node. And at each node its critical to figure out that perfect balance of supply and demand or else suffer dire consequences, if you have too little inventory, you risk lost sales and customers from out of stock. If you have too much inventory, you will need more of everything, ore spaces, handling, transportation, money and labor. There are several companies that have inventory problems; one example of inventory management issues is Abercrombie. Performance has fluctuated over the past year mainly due to its inventory management issues. In early 2012, the retailer was struggling with excess inventory at its stores and had to usher in large scale promotions that weighed on its comparable store sales growth. Although the company tried to have a better control over its inventory in the subsequent months, the results remained the same. Due to a slower growth in its inventory levels, Abercrombie could not keep up with the market demand in Q1 fiscal 2013, which again dragged its comparable store sales down. Maintaining optimum inventory level is extremely important for a retailer. How the inventory is trending compared to the overall demand is something that investors should closely monitor. Abercrombie was fronting problems in managing its inventory which led to accumulation of merchandise at its stores. The retailer ushered in massive promotions which resulted in a decline...
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...Chapter 13 3. Briefly describe each of the costs associated with inventory. There are four basic costs associated with inventory. They are purchase, holding, transaction (ordering), and shortage costs. (1) Purchase costs is the amount paid to buy the inventory (2) Holding costs are those costs to carry an item in inventory for a length of time, usually a year (3) Transaction/ordering costs are the costs of ordering and receiving inventory (4) Shortage costs result when demand exceeds the supply of inventory 6. List the major assumptions of the EOQ model. The assumptions of the EOQ model are (1) only one product is involved (2) annual demand requirements are known (3) demand is spread evenly throughout the year so the demand rate is reasonably constant (4) lead time is known and constant, (5) each order is received in a single delivery, and (6) there are no quantity discounts 10. Under what circumstances would the amount of safety stock held be • a. Large? When large variations in lead time and/or usage is present • b. Small? Small variations in usage or lead time require small safety stock • c. Zero? When usage and lead time are constant or when the service level is 50% 11. What is meant by the term service level? Generally speaking, how is service level related to the amount of safety stock held? Service level can be defined as the probability that demand will not exceed supply during lead time. The customer service level increases as the risk of stock...
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...Company A having larger inventory than Company B. Company A (with larger inventory) will have the following advantages: * Lower ordering costs: For the raw materials they will be able to spread the fixed ordering costs over a larger amount of goods. * Quantity discounts: For the raw materials they would be better positioned to request quantity discounts because they would be ordering in bulk amounts. * Lower transportation costs: For the finished goods they will be able to reduce transportation costs because they can deliver more of the goods in one shipment versus having to deliver individual items. * Lower setup costs: For the work-in-process inventory they will be able to reduce setup costs that are incurred for switching between products. * Higher capacity utilization: With large inventory, they will be able to utilize their installed capacity to the maximum possible level. * Higher customer service: Provide better customer service by avoiding stock outs and backorders on finished goods. By avoiding these two scenarios they will be able to ensure on-time delivery. * Buffer: An excess inventory of finished goods can provide a buffer for increases in customer demand. The business is taking a risk by building and storing finished products in anticipation of customer demand, but it can reduce the lead time and improve customer satisfaction. Company B (with smaller inventory) will have the following advantages (has smaller inventory): * Less working...
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...Iowa State University Digital Repository @ Iowa State University Graduate Theses and Dissertations Graduate College 2008 Inventory management in a manufacturing/ remanufacturing hybrid system with condition monitoring Bhavana Padakala Iowa State University, bhavana4@iastate.edu Follow this and additional works at: http://lib.dr.iastate.edu/etd Part of the Industrial Engineering Commons Recommended Citation Padakala, Bhavana, "Inventory management in a manufacturing/remanufacturing hybrid system with condition monitoring" (2008). Graduate Theses and Dissertations. Paper 11925. This Thesis is brought to you for free and open access by the Graduate College at Digital Repository @ Iowa State University. It has been accepted for inclusion in Graduate Theses and Dissertations by an authorized administrator of Digital Repository @ Iowa State University. For more information, please contact hinefuku@iastate.edu. Inventory management in a manufacturing/remanufacturing hybrid system with condition monitoring by Bhavana Padakala A thesis submitted to the graduate faculty in partial fulfillment of the requirements for the degree of MASTER OF SCIENCE Major: Industrial Engineering Program of Study Committee: Sarah M. Ryan, Major Professor Jo Min Danny J. Johnson Iowa State University Ames, Iowa 2008 Copyright © Bhavana Padakala, 2008. All rights reserved. ii TABLE OF CONTENTS LIST OF FIGURES ........................................................
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...business, it needs to keep track of the products in the firm. Keeping an accurate inventory is critical to lowering costs and providing a more streamlined operation. Traditional inventory management has largely been phased out by technologically advanced. They rely on hand-counted or electronically reported stock levels, manual order placement and storage. The SJF Auto Parts needs a computerized inventory system because of transactions they covered. In the helps of the system it makes everything from inputting information to taking inventory easier and leads for their success and growth. The owner can monitor the business at the website so that the owner can monitor at lest they can’t go to the store because of some agendas. The system's availability of sufficient products for the customers whereas function deals with monitoring the stocks of the products. Checking of stocks availability, generating and providing the reports on time, securing of important data and information.. .Primary reason to hold inventory is to offset uncertainties in demand . if demand increase and raw materials stocks run out, the production line shuts down until more materials is delivered. Likewise, a shortage of work in process means the product cannot be finish. Finally, if customers order outstrip finish good supply, the resulting stock outs could lead to lost customers. SJF auto parts suffer in the manual inventory system . Counting the amounts of Billions of auto parts to the smallest and to the...
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...shoes should you order to maximize your expected profit? b. How would the order size change if the selling price increased? c. How would the order size change if the demand variability decreased? 2. An automotive repair shop stocks many sizes of tires. One particular size and model is purchased for $30. The manager estimates the fixed cost to order at $75, including the delivery charge and the paperwork. Using the cost of rent, interest, and utilities, the manager estimates the cost of carrying inventory at approximately 10% per year based on average inventory value. The shop sells approximately 3,000 of these tires per year. Orders are received 2 weeks after placement. a. Determine the optimal number of tires the shop should purchase each time an order is placed, and the time between orders. b. What is the reorder point? Average inventory carried? c. If the weekly demand standard deviation were 5, what would the reorder point be to achieve a 98% service level? Average inventory...
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...Stock control and inventory Stock control is used to show how much stock you have at a point in time, and how you keep track of it. It applies to every item you use to produce from raw materials to finished goods and whether it is a product or service. It covers stock at each stage of the production process, from purchase and delivery to using and re-ordering the stock. Having the right amount of stock is important as it ensures that capital is not tied up unnecessarily, and protects production if problems arise with the supply chain. Types of stock Everything you use to make your products, provide your services and to run your business is part of your stock. Types of stock: • raw materials and components (used in production) • work in progress (unfinished goods in production) • finished goods (ready for sale) • consumables (fuel and stationery etc) How much stock should you keep? The size and nature f your business decided how much stock to keep, and the type of stock involved. If you are short of space, you may be able to buy stock in bulk and then pay a fee to your supplier to store it, calling it off as and when needed. Keeping little or no stock and negotiating with suppliers to deliver stock as you need it Advantages: • Lower storage costs • You can keep up to date and develop new products without wasting stock • Efficient and flexible - you only have what you need, when you need it Disadvantages: ...
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...Inventory Auditing Inventory Auditing Inventory is tangible goods held by a company to support production, support activities or for sale or customer service. They are comprised normally of parts, tools, maintenance supplies, raw materials, work in progress, finished goods and waste or by-products (Inventory, 2012). Inventory is often the main item in the current assets category, and must be accurately counted and valued at the end of the accounting period to ascertain a company's profit or loss. Organizations whose inventory items have a bigger unit cost often keep a daily record of changes in inventory (perpetual inventory method) to ensure accurate control. Similarly, companies with smaller inventory item cost most often update inventory records at the end of an accounting period (periodic inventory method) (Inventory and COGS, 2012). The value of an inventory depends on the valuation method used, such as first-in, first-out (FIFO) method or last-in, first-out (LIFO) method (Inventory and Cost of Goods Sold, 2012). Generally Accepted Account Principles require that inventory should be valued on the basis of either its cost or its current market price, whichever is lower to prevent overstating of assets and earnings due to an increase in the inventory's value in inflationary periods (Section 3140: Inventory, 2012).. Methods Inventory audits usually start when auditors meet with a company’s owner or manager. Auditors will discuss the company’s...
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...ACCOUNTING FOR INVENTORIES For Merchandising Firms Inventories are valued at cost, net of discounts, and including transportation and other costs (ie: import duties) to prepare the goods for sale. Buying Inventory: * DR Merchandise Inventory, CR Cash/Accounts Payable Selling Inventory: * DR A/R or Cash, CR Revenues * DR Cost of Goods Sold Expense, CR Merchandise Inventory Lower of Cost or Market (LOCOM): * Inventories can sometimes decrease in value while stored due to market conditions, obsolescence or damage * Accounting standards require firms to subject their inventories to an impairment test at fiscal year-end and, where the FMV < Purchase Price, write down the value of their inventory * FMV in IRFS = “net realizable value”; in US GAAP = “replacement cost” * For example, if you purchased 200 ropes at $40 but they are only worth $30 at year end: * DR Impairment expense $2000, CR Accumulated Inventory Impairment $2,000 * The reason we don’t subtract impairment directly from merchandise inventory is because the loss is still unrealized and there is a possibility of recovery in the future. * For example, say market conditions improved and now ropes were valued at $50 * DR Accumulated Inventory Impairment $2,000, CR Impairment Expense $2,000 * Here it does not matter how much greater the value is, we do not account for increases in value Methods of Inventory Valuation ...
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...Inventory Errors When ending inventory is overstated, profit and assets are overstated. When ending inventory is understated, profit and assets are understated. Ending inventory is the beginning inventory for the next accounting year, so if a mistake is made in determining that amount, it will affect year 1 as well as year 2. That means, then, that two year's Balance Sheets and Income Statements will be incorrect. To fix inventory errors, reverse the error as soon as it detect, record the correct accounting entries, and restate prior-period financial statements. Reverse the error and record the correct journal entries if an inventory error is detected in the same period. For example, if you incorrectly record a cash inventory purchase as $20,000 instead of $2,000, debit or increase cash and credit or decrease inventory by $18,000 ($20,000 - $2,000) each to reverse the error. “Correct a prior-period inventory error. For example, if the previous year's ending inventory was understated by $1 million, then the beginning inventory and retained earnings balances for the current year also are understated by $1 million” (Basu, 1999-2013). Debit inventory and credit retained earnings by $1 million each to reverse the prior-period error. You then need to count the inventory correctly in the current year and there should be no inventory-related errors on your financial statements for this year and going forward. Restate prior-period financial statements. The cost of goods sold and...
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...One should start by saying that inventory management is the active control program that facilitates the management of sales, purchases and disbursements. The inventory management is all about special software that would reduce the costs and human efforts required to create invoices, purchase orders, various receiving lists, or payment receipts. The inventory management attempts to coordinate all the efforts in the warehouse, retail and other product lines in order to develop better controls of the processes that go inside the organization. Speaking about a particular software, I would like to note that one of the many is available at http://www.advanceware.net/modules.asp. The software is said to provide all the needed inventory management tools in just one package. The website provides a demo version of the software where one is able to explore the shipping module. The software allows the company to print serial numbers on an invoice, set a default tax rate, generate several types of reports, receive and process various customer/vendor returns, and place/process customer orders in various currencies. As for the inventory management in the workplace I would like to note that because I work in the hotel industry, the inventory management is different here than in other industries. The inventory that hotel manages is the room space available for rental. One should understand that because hotel industry sells services the improper inventory management might mean that the hotel...
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...Sisters Inventory Management Solution Assignment 2 After speaking to my sister I have put together a plan to help her better track and control her inventory for her company. The first things that she will need are a computer, barcode scanner, barcode reading software such as Redbeam Inventory Tracking Standard Edition which actually comes with a barcode scanner. She will also need to have space to store her inventory. She would also need a cash register and computer to keep track of her business sales and transactions. The cost for all equipment and software is a total of $1,812.50. This cost includes all software and hardware that will be needed to keep track of all purchases and returns. Installation of the hardware computer system would need to be done during non-operational times of the store. But to use this system effectively all employees need to be trained properly on how to run the system and how to handle any problems that may occur. After the system and hardware are installed all inventory needs to be scanned into the computers inventory system. The way that this system will make it easier to keep track of all stores inventory is because it will allow the system to automatically delete items purchased at the point of sale. It will also allow the system to be updated as items are also returned by placing the item back into the store’s inventory. The system can also be programmed to alert store and inventory personnel when to order more of a certain product...
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...should not be seen as obviating the need for the ABC inventory classification scheme. Although the cost of computing has decreased considerably, the cost of data acquisition has not decreased in a similar fashion. Business organizations still have many items for which the cost of data acquisition for a “perpetual” inventory system is still considerably higher than the cost of the item. The standard EOQ model assumes instantaneous delivery (delivery of the entire lot is made at one instant of time), whereas the Production Inventory Model assumes that delivery takes place at a constant rate over time. 3. Reasons for an organization to maintain inventory include: * The decoupling function: * inventory can be used to decouple stages in the production process within an organization * inventory can be used to decouple the production process from instabilities or irregularities in supply of raw materials or labor * inventory can be used to decouple the production process from unstable demand and thus (a) allow production scheduling to develop a “smoother” schedule, and (b) avoid shortages or stockouts * Quantity discounts: * inventory can be used to enable the organization to purchase goods in larger lot sizes and take advantage of quantity discounts * A hedge against inflation: * investing in inventory now assures one that the price will not increase 4. Costs that are associated with ordering and maintaining inventory include: * Initial purchase cost of the item...
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...Inventory Management Name Professor Operations Management March 4, 2014 Abstract In this paper I will present the different characteristics of inventory management and how it relates to two supply chains I have selected. My goal is to show how inventory has an effect on operations, customer satisfaction, and the efficiency of these companies daily business. The research I have done will speak a little about the transition from the old time consuming tracking to today’s electronic system. I will also provide my ideas of how to improve inventory manager in the future. Service is one of the largest parts of development in business. Being able to provide quality service depends in part on inventory and the management of it. These two very important business elements always lead back to the customer. And this is how I chose the companies I wanted to compare and contrast for this essay. The two service companies I chose are Walmart and Target. As most people know Walmart was founded in 1962 by Sam Walton. When Sam began his business his main focus was small town and low prices. He planned a sneak attack and was able to establish himself as one of the top competitors with big names like Target and Kmart. Target is a division of the Dayton Hudson Corporation and was also started in 1962. With the same goal in mind Target stores were opened to offer the customers quality goods with low prices. These two companies were both started with a similar practice for success but they...
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