ACCT 2101: Chapter 5
20 Cards in this Set
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Reorder Point
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(Daily Demand x Lead time) + Safety Stock
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Annual Demand/Days of operation DD
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Daily Demand
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EOQ (Economic Order Quantity) Model
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(Model):
Q= √ 2DO÷C
D = annual demand
O = incremental ordering cost (batch-related)
C = incremental carrying cost (unit-related)
Short term model,minimizes incremental ordering and holding cost
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What are the Common Reasons for Not Holding Inventory?
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Having inventory means significant costs are incurred including risk of obsolescence
Holding inventory allows the company to "hide" its internal process problems b/c demand can be met from inventory
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What are the Common Reasons for Holding Inventory?
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Meet customer demand
Smooth production scheduling
Take advantage of quantity discounts
Hedge against anticipated cost increases
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Life-Cycle Pricing
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A pricing strategy based on the estimated total cost of the product over its life
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Compensation Issues
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Bonuses
Insurance
Paid Leave
Gross =Amount earned
Net =Amount Received
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What are the Common Compensation Plans?
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Piece rate
Pay based on units completed
Commission
Pay based on sales
Hourly
Pay based on hours worked
Salary
Pay based on period of time
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Gouging
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setting high price due to unusual demand
illegal
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Skimming Pricing
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Setting Higher Initial Selling Price due to Uniqueness of product (legal)
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Mark up
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amount added to the cost of the product or service
Can be expressed in $ or %
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What is Selling Margin?
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Selling price - cost of goods sold
same in dollars but not percent
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External market influence selling prices
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pure competition: market determines selling price, indiviv co is price taker
monopolistic comp: " ", indiv co influence selling price through advertising
oligopoly: few co control selling price, gov monitors
monopoly: 1 co controls, gov approves price changes
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External Market
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Oligopoly
Monopoly
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Monoply
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total ownership of a product or service government approves price charge
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Primary Influences on Selling Price
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These are ________________.
Customers
Customer perspective of balanced scorecard
Competitors
Learning and growth perspective
Legal and social forces
Learning and growth perspective
Cost
Internal perspective of balanced scorecard
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Penetration Pricing
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setting a low initial selling price to entice customers to try product/ service (legal)
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Predatory pricing
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is the practice of charging a very low price for a product with the intent of driving competitors out of business. -illegal
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Target Pricing
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company first estimates the selling price and then subtracts required mark up to determine target cost
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How are Bonuses calculated?
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Bonus Amount
-Net income before bonus taxes
-Net income before Taxes after bonus
-Net income (after bonus and taxes)
Bonus Rate
-Percentage of bonus amount
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ACCT 2101: Chapter 5