Inventory Control

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.