ACCT 3130 Chapter 20

___ includes planning, coordinating, and controlling activities related to the flow of inventory into, through, and out of an organization.

Managing inventories to increase net income requires effectively MANAGING COSTS into these six categories:

• Purchasing Costs & Ordering Costs

• Carrying Costs

• Stockout Costs

• Quality Costs

• Shrinkage Costs

The cost of goods acquired from suppliers, including incoming freight costs.

• Purchasing Costs

• Carrying Costs

• Stockout Costs

• Quality Costs

• Ordering Costs

The cost of preparing & issuing purchase orders, receiving & inspecting the items included in the orders & matching invoices received, purchase orders, and delivery records to make payments.

• Purchasing Costs

• Carrying Costs

• Stockout Costs

• Quality Costs

• Ordering Costs

The cost that arise while goods are being held in inventory. These costs include the opportunity cost of the investment tied up in inventory & costs associated with storage.

• Purchasing Costs

• Carrying Costs

• Stockout Costs

• Quality Costs

• Ordering Costs

The costs that arise when a company runs out of a particular item for which there is customer demand.

• Shrinkage Costs

• Carrying Costs

• Stockout Costs

• Quality Costs

• Ordering Costs

The costs incurred to prevent & appraise, or the costs arising as a results of quality issues.

• Shrinkage Costs

• Carrying Costs

• Stockout Costs

• Quality Costs

• Ordering Costs

Costs that result from theft by outsiders, embezzlement by employees, misclassifications & clerical errors.

• Shrinkage Costs

• Carrying Costs

• Stockout Costs

• Quality Costs

• Ordering Costs

What are the four categories of Costs of Quality?

• Prevention

• Appraisal

• Internal Failure

• External Failure

A decision model that calculates the optimal quantity of inventory to order under a given set of assumptions.