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.