Accounts Receivable, Inventory, and Total Quality Management

1. Accounts Receivable, Inventory, and Total Quality Management

2. JOIN KHALID AZIZ • ECONOMICS OF ICMAP, ICAP, MA-ECONOMICS, B.COM. • FINANCIAL ACCOUNTING OF ICMAP STAGE 1,3,4 ICAP MODULE B, B.COM, BBA, MBA & PIPFA. • COST ACCOUNTING OF ICMAP STAGE 2,3 ICAP MODULE D, BBA, MBA & PIPFA. CONTACT: 0322-3385752 R-1173,ALNOOR SOCIETY, BLOCK 19,F.B.AREA, KARACHI, PAKISTAN.

3. Accounts Receivable Management Determinants of Accounts Receivable • Percent of Credit Sales to Total Sales • Level of Sales • Terms of Sale • Quality of Customer • Collection Efforts

4. Accounts Receivable Management Terms of Sale • quoted as a/b net c , which means “deduct a% if paid within b days, otherwise pay within c days.” • example: 3/30 net 60, means “deduct 3% if paid within 30 days, otherwise pay the entire amount within 60 days.”

5. Accounts Receivable Management Terms of Sale • annualized opportunity cost of foregoing a discount:

6. Accounts Receivable Management x Terms of Sale • annualized opportunity cost of foregoing a discount: a 360 1 - a c - b

7. Accounts Receivable Management x a 360 1 - a c - b opportunity cost of forgoing 3/30 net 60:

8. Accounts Receivable Management x x a 360 1 - a c - b opportunity cost of forgoing 3/30 net 60: .03 360 1 - .03 60 - 30 = 37.11%

9. Inventory Management • Too much inventory is expensive and wasteful. • Not enough inventory can result in lost sales.

10. Inventory Management • Raw Materials Inventory - basic materials to be used in the firm’s production operations. • Work-in-Process Inventory - partially finished goods requiring additional work before becoming finished goods. • Finished goods Inventory - completed products that are not yet sold. • Stock of Cash - inventory of cash to allow payment of bills.

11. JOIN KHALID AZIZ • ECONOMICS OF ICMAP, ICAP, MA-ECONOMICS, B.COM. • FINANCIAL ACCOUNTING OF ICMAP STAGE 1,3,4 ICAP MODULE B, B.COM, BBA, MBA & PIPFA. • COST ACCOUNTING OF ICMAP STAGE 2,3 ICAP MODULE D, BBA, MBA & PIPFA. CONTACT: 0322-3385752 R-1173,ALNOOR SOCIETY, BLOCK 19,F.B.AREA, KARACHI, PAKISTAN.

12. Inventory Management • Optimal inventory order size: the Economic Order Quantity (EOQ) model:

13. Inventory Management Q* = • Optimal inventory order size: the Economic Order Quantity (EOQ) model: 2SO C

14. Inventory Management 2SO C Q* = Q = inventory order size in units C = cost of carrying 1 unit in inventory S = total demand in units over planning period O = ordering cost per order

15. Example: Inventory Management 2SO C Q* = Q = inventory order size in units C = cost of carrying 1 unit in inventory = 1.25 S = total demand in units over planning period = 10,000 units O = ordering cost per order = $250

16. Example: Inventory Management Q* = 2SO C

17. Example: Inventory Management Q* = 2SO C 2x250x10,000 1.25 Q* =

18. Example: Inventory Management Q* = 2SO C 2x250x10,000 1.25 = 2,000 units Q* =

19. Order Point Problem = + safety stock Average EOQ inventory 2

20. TQM • Total Quality Management: a company-wide systems approach to quality. • An effort to increase quality through better supplier relations. • Interdependence between supplier and customer allows for development of new, better products.

21. ATTENTION COMMERCE STUDENTS ACCOUNTING(FINANCIAL & COST) OFICMAP STAGE 1,2,3,4 CA..MODULE B,C,DPIPFA (FOUNDATION,INTERMEDIATE,FINAL)ACCA-F1,F2,F3BBA,MBAB.COM(FRESH),M.COMMA-ECONOMICS..O/A LEVELSKHALID AZIZ…..0322-3385752..kARACHIJOIN GROUP http://finance.groups.yahoo.com/group/cost-accountants