hansen and mowen managerial accounting ch 14
DESCRIPTION
Hansen and Mowen Managerial Accounting CH 9TRANSCRIPT
![Page 1: Hansen and Mowen Managerial Accounting CH 14](https://reader031.vdocument.in/reader031/viewer/2022033005/55cf9bda550346d033a79f64/html5/thumbnails/1.jpg)
1
PowerPointPowerPoint Presentation by Presentation by
Gail B. WrightGail B. WrightProfessor Emeritus of AccountingProfessor Emeritus of AccountingBryant UniversityBryant University
© Copyright 2007 Thomson South-Western, a part of The Thomson Corporation. Thomson, the Star Logo, and
South-Western are trademarks used herein under license.
MANAGEMENT ACCOUNTING
8th EDITION
BY
HANSEN & MOWEN
14 INVENTORY MANAGEMENT
STUDENT EDITION
![Page 2: Hansen and Mowen Managerial Accounting CH 14](https://reader031.vdocument.in/reader031/viewer/2022033005/55cf9bda550346d033a79f64/html5/thumbnails/2.jpg)
2
1. Describe the traditional inventory management model.
2. Discuss JIT inventory management.
3. Explain the theory of constraints (TOC) & tell how it can be used to management inventory.
LEARNING OBJECTIVESLEARNING OBJECTIVES
![Page 3: Hansen and Mowen Managerial Accounting CH 14](https://reader031.vdocument.in/reader031/viewer/2022033005/55cf9bda550346d033a79f64/html5/thumbnails/3.jpg)
3
INVENTORY MANAGEMENT
Managing inventory for competitive advantage includes:
Quality product engineering Prices Overtime Excess capacity Ability to respond to customers Lead times Overall profitability
LO 1
![Page 4: Hansen and Mowen Managerial Accounting CH 14](https://reader031.vdocument.in/reader031/viewer/2022033005/55cf9bda550346d033a79f64/html5/thumbnails/4.jpg)
4
INVENTORY COSTS
Costs to acquireOrdering costsSetup costs
Carrying costsStockout costs
LO 1
![Page 5: Hansen and Mowen Managerial Accounting CH 14](https://reader031.vdocument.in/reader031/viewer/2022033005/55cf9bda550346d033a79f64/html5/thumbnails/5.jpg)
5
EOQ: DefinitionEOQ: Definition
Is a model that calculates the best quantity to order or
produce. (Economic Order Quantity)
LO 1
![Page 6: Hansen and Mowen Managerial Accounting CH 14](https://reader031.vdocument.in/reader031/viewer/2022033005/55cf9bda550346d033a79f64/html5/thumbnails/6.jpg)
6
What are 2 basic questions addressed by EOQ?
1. How much should be ordered (produced)?
2. When should the order be placed (setup done)?
LO 1
![Page 7: Hansen and Mowen Managerial Accounting CH 14](https://reader031.vdocument.in/reader031/viewer/2022033005/55cf9bda550346d033a79f64/html5/thumbnails/7.jpg)
7
TOTAL COST: BackgroundTOTAL COST: Background
The total cost (TC) formula includes the following:
P = $25 per order [cost of placing & receiving order
(setup & production)]
D = 10,000 [known demand]
Q = 1,000 [order size (or production lot size)]
C = $2 per unit [carrying cost of 1 unit for 1 year]
The total cost (TC) formula includes the following:
P = $25 per order [cost of placing & receiving order
(setup & production)]
D = 10,000 [known demand]
Q = 1,000 [order size (or production lot size)]
C = $2 per unit [carrying cost of 1 unit for 1 year]
LO 1
![Page 8: Hansen and Mowen Managerial Accounting CH 14](https://reader031.vdocument.in/reader031/viewer/2022033005/55cf9bda550346d033a79f64/html5/thumbnails/8.jpg)
8
FORMULA: Total Cost
Total cost looks at all inventory costs.
LO 1
Total cost (TC) equation 14.1:
= Ordering cost + Carrying cost
= PD/Q + CQ/2
PD/Q = [(10,000/1,000) x $25] = $ 250
CQ/2 = [(1,000/2) x $2] = $1,000
TC = $1,250
![Page 9: Hansen and Mowen Managerial Accounting CH 14](https://reader031.vdocument.in/reader031/viewer/2022033005/55cf9bda550346d033a79f64/html5/thumbnails/9.jpg)
9
How can the total cost be reduced?
The EOQ model will compute the cheapest
batch order size.
LO 1
![Page 10: Hansen and Mowen Managerial Accounting CH 14](https://reader031.vdocument.in/reader031/viewer/2022033005/55cf9bda550346d033a79f64/html5/thumbnails/10.jpg)
10
FORMULA: EOQ
EOQ is a calculation intended to lower total inventory costs.
LO 1
EOQ equation 14.2:
= √ 2 x Order costs ÷ Unit cost
= √ 2PD/C
= √ 2 x $25 x 10,000 / $2
= √ 250,000
= 500
![Page 11: Hansen and Mowen Managerial Accounting CH 14](https://reader031.vdocument.in/reader031/viewer/2022033005/55cf9bda550346d033a79f64/html5/thumbnails/11.jpg)
11
What do you do with the order quantity calculated
by the EOQ model?
Enter the order quantity into the TC equation in
14.1.
LO 1
![Page 12: Hansen and Mowen Managerial Accounting CH 14](https://reader031.vdocument.in/reader031/viewer/2022033005/55cf9bda550346d033a79f64/html5/thumbnails/12.jpg)
12
FORMULA: EOQ Cost
EOQ Total cost calculates TC using the EOQ batch size in units to cut total cost by $250.
LO 1
Total cost (TC) equation 14.1:
= Ordering cost + Carrying cost
= PD/Q + CQ/2
PD/Q = [(10,000/500) x $25] = $ 500
CQ/2 = [(500/2) x $2] = $ 500
TC = $1,000
![Page 13: Hansen and Mowen Managerial Accounting CH 14](https://reader031.vdocument.in/reader031/viewer/2022033005/55cf9bda550346d033a79f64/html5/thumbnails/13.jpg)
13
FORMULA: Reorder Point (ROP)
ROP identifies the proper time to place an order to avoid stockout.
LO 1
Reorder Point (ROP) equation 14.3:
= Rate of usage x Lead time
= 50 parts per day x 4 days
= 200 parts
![Page 14: Hansen and Mowen Managerial Accounting CH 14](https://reader031.vdocument.in/reader031/viewer/2022033005/55cf9bda550346d033a79f64/html5/thumbnails/14.jpg)
14
FORMULA: Safety Stock
Safety stock provides a buffer to reorder point.
LO 1
Safety stock:
= Lead time x (maximum – average usage)
= 4 days x (60 – 50)
= 40 parts
![Page 15: Hansen and Mowen Managerial Accounting CH 14](https://reader031.vdocument.in/reader031/viewer/2022033005/55cf9bda550346d033a79f64/html5/thumbnails/15.jpg)
15
FORMULA: ROP + Safety Stock
Safety stock adds a buffer to reorder point.
LO 1
Reorder Point (ROP) equation 14.4:
= Rate of usage x Lead time + Safety stock
= 50 parts per day x 4 days + 40
= 240 parts
![Page 16: Hansen and Mowen Managerial Accounting CH 14](https://reader031.vdocument.in/reader031/viewer/2022033005/55cf9bda550346d033a79f64/html5/thumbnails/16.jpg)
16
JUST-IN-TIME (JIT): DefinitionJUST-IN-TIME (JIT): Definition
Is a demand-pull manufacturing system that requires goods to be pulled
through the system by present demand.
LO 2
![Page 17: Hansen and Mowen Managerial Accounting CH 14](https://reader031.vdocument.in/reader031/viewer/2022033005/55cf9bda550346d033a79f64/html5/thumbnails/17.jpg)
17
JIT: Strategic Objectives
Increase profitsImprove competitive position
BYControlling costsImproving delivery performanceImproving quality
LO 2
Controlling costs
![Page 18: Hansen and Mowen Managerial Accounting CH 14](https://reader031.vdocument.in/reader031/viewer/2022033005/55cf9bda550346d033a79f64/html5/thumbnails/18.jpg)
18
What kinds of changes does JIT address?
Basic inventory features of JIT address how manufacturing facilities can be designed to
promote employee empowerment & product quality.
LO 2
promote employee empowermentproduct quality.
![Page 19: Hansen and Mowen Managerial Accounting CH 14](https://reader031.vdocument.in/reader031/viewer/2022033005/55cf9bda550346d033a79f64/html5/thumbnails/19.jpg)
19
Shutdowns are caused by: Machine failure Defective material or sub-assembly Unavailability of material or sub-assembly
JIT response Total preventive maintenance Total quality control (TQC) Using the Kanban system
AVOIDING SHUTDOWNS: JIT
LO 2
Total preventive maintenance
![Page 20: Hansen and Mowen Managerial Accounting CH 14](https://reader031.vdocument.in/reader031/viewer/2022033005/55cf9bda550346d033a79f64/html5/thumbnails/20.jpg)
20
LIMITATIONS OF JIT
Time is required to build sound relations with suppliers
Workers experience stress in changing over to JIT
Production may be interrupted because of absence of inventory supply buffer
May place current sales at risk to achieve assurance of future sales
LO 2
![Page 21: Hansen and Mowen Managerial Accounting CH 14](https://reader031.vdocument.in/reader031/viewer/2022033005/55cf9bda550346d033a79f64/html5/thumbnails/21.jpg)
21
CONSTRAINT: DefinitionCONSTRAINT: Definition
Is the limitation of resources or product
demand.
LO 3
![Page 22: Hansen and Mowen Managerial Accounting CH 14](https://reader031.vdocument.in/reader031/viewer/2022033005/55cf9bda550346d033a79f64/html5/thumbnails/22.jpg)
22
THEORY OF CONSTRAINTS
Theory of constraints (TOC) focuses on 3 measures of organizational performance:
Throughput: rate of generating money through sales
Inventory: money spent turning materials into throughput
Operating expenses: money spent turning inventory into throughput
LO 3
![Page 23: Hansen and Mowen Managerial Accounting CH 14](https://reader031.vdocument.in/reader031/viewer/2022033005/55cf9bda550346d033a79f64/html5/thumbnails/23.jpg)
23
BASIC CONCEPTS: TOC
TOC suggests that constraints (and thereby inventory) are best managed throughHaving better, higher quality productsHaving lower pricesBeing responsive
On-time deliveryShorter lead time
LO 3
![Page 24: Hansen and Mowen Managerial Accounting CH 14](https://reader031.vdocument.in/reader031/viewer/2022033005/55cf9bda550346d033a79f64/html5/thumbnails/24.jpg)
24
TOC STEPS
1. Identify constraints
2. Exploit binding constraints
3. Subordinate everything to decision made in #2 above
4. Elevate binding constraints
5. Repeat process
LO 3
![Page 25: Hansen and Mowen Managerial Accounting CH 14](https://reader031.vdocument.in/reader031/viewer/2022033005/55cf9bda550346d033a79f64/html5/thumbnails/25.jpg)
25
BINDING CONSTRAINTS: Definition
BINDING CONSTRAINTS: Definition
Are those constraints whose available resources
are fully utilized.
LO 3
fully utilized.
![Page 26: Hansen and Mowen Managerial Accounting CH 14](https://reader031.vdocument.in/reader031/viewer/2022033005/55cf9bda550346d033a79f64/html5/thumbnails/26.jpg)
26
THE ENDTHE END
CHAPTER 14