Ag Bus Mgt Test 3

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  1. 2 Reasons to hold inventory
    • Match supply with demand
    • Prevent stockouts (unfilled order)
  2. Management Info Styems (MIS) provide what 3 things?
    • 1. accurate and timely production (cost info, all phases of biz)
    • 2. Data in proper form needed
    • 3. Accounting info that allows accurate and quick development of business financial documents
  3. Purchasing plan is the aquisition of needed materials, supplies, services and equipment with the right 5 components. What are the five components?
    • Quality
    • Quantities
    • Prices
    • Time
    • Vendor/Supplier
  4. Under Total Quality Management (TQM), companies define a quality product as one that conforms to
    predetermined standards that saitisfy customers' demand
  5. Four attributes of quality?
    • 1. How well the product conforms to predetermined standards
    • 2. The most effective way to acheive quality is to prevent defects (not inspect them out)
    • 3. Performance requirement is zero defects
    • 4. True measure of quality is price of nonconformance (the cost of producing poor quality)
  6. Kaizen
    Total quality management philosphy which holds that small improvements made over time accumulate into a radically reshaped and improved business process.
  7. The amount of stock to purchase with an order (or amount to produce with each production run) to minimize total inventory costs
    Economic order quantity (EOQ)
  8. Lowest total cost of inventory including holding and ordering costs
    Economic order quantity (EOQ)
  9. Why is investing in a large inventory not profitable?
    The money invested in inventory returns nothing until the inventory is sold
  10. Total Cost of Inventory
    Total Direct Cost+Ordering costs (OC)+ Carrying costs (CC)
  11. Reorder Point
    L (lead time) * U (usage rate) + S (safety stock)
  12. Typically, three types of discounts:
    • Trade discounts
    • Quantity discounts
    • Cash discounts
  13. Trade discounts
    • established on a graduated scale that depends on firm's position in the vertical marketing system
    • Manufacturer-wholesale-retailer-customer
  14. Purchase discounts
    • Offered to customer as an incentive to pay for merchandise promptly
    • 2/10 net 30 (2 percent discount if pay in 10 days, due in 30)
  15. Rate of foregoing
    • I/PxT
    • I= the amount you'd be saving if you take the discount
    • P= the amount you'd pay if you take the discount¬†
    • T= number of days divided by 365
  16. Timing involved what 3 components?
    • Lead time
    • Usage Rate
    • Safety Stock
  17. Perpetual inventory control system
    • Running count of inventory
    • Involves sheets placed next to merchandise¬†
    • Relatively more expensive
  18. Visual inventory control
    • simple control
    • good for large number of low value items (road salts, fertilizers)
    • sales should be relatively consistent, variety of merchandise small
  19. Partial inventory control
    • Small businesses with limited time/$
    • Follows 80/20 rule
    • (80 percent of items are worth 20 percent of sales and vice versa)
    • Track the smaller number worth more money
  20. ABC Method of inventory control
    • Divides inventory into 3 categories
    • A - big ticket items (top 15%)
    • B - Moderate dollar amounts (top 35%)
    • C - low dollar, high volume inventory (50%)
    • A items use perpetual inventory system
  21. ABC Summary: Level of Control
    • A items should Monitor closely, maintain tight control
    • B items should Moderate control
    • C items are okay with Loose control
  22. ABC Summary: Reorder
    • A items Based on forecasted requirements
    • B items Based on EOQ calculations and past experience
    • C items When level gets low, reorder
  23. ABC Summary Recordkeeping
    • A items should have detailed records of disbursements and receipts
    • B items should use periodic inspection and control procedures
    • C items don't really need records
  24. ABC Summary Safety Stock
    • A items have low levels of safety stock
    • B items need moderate levels
    • C items should have high levels of safety stock
  25. ABC Summary Inspection frequency
    • A items should have frequent inspections of schedule changes¬†
    • B items should have period checks on changes in requirements
    • C items need few checks on requirements
  26. Just in time inventory
    • Views excess inventory as a blanket that masks problems
    • Suppliers take care of the inventory
  27. Usage Rate
    Total annual demand/number of days
  28. Total fixed costs
    • Do not vary with change in volume of sales or production
    • insurance, property taxes, rent payments
  29. Total variable costs
    • Vary directly with change in volume of sales or production
    • raw material costs, direct labor, sales commission
  30. Mixed costs
    • have characteristics of both fixed and variable costs
    • car rental
  31. Contribution margin
    excess of sales revenue over variable costs
  32. Unit contribution margin
    price per unit - variable cost per unit
  33. Contribution Margin Ratio
    • Also called the profit volume ratio
    • percentage of each sales dollar available to cover fixed costs and profits from operation
    • sales-variable costs/sales
  34. Shutdown price: Short run
    • Firm with idle capacity can take job where price does not cover all total cost
    • If contribution is positive (P-AVC>0), take the job
    • If contribution is negative (P-AVC<0), shut down
  35. cost of storage
    holding cost
  36. cost of insurance
    holding cost
  37. cost of taxes
    holding cost
  38. interest cost
  39. depreciation
  40. spoilage
  41. obselescence
  42. pilferage
  43. rent warehousing facilities
  44. building warehouse facilities
  45. operating storage facility, including heating, refrigeration, lighting
    holding costs
  46. preparing purchase orders
    setup cost
  47. analyzing and choosing vendors
    setup cost
  48. processing, handling, expediting orders
    setup costs
  49. receiving and inspecting items
    setup costs
  50. accounting and clerical work
    setup costs
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Ag Bus Mgt Test 3
2014-04-24 11:10:57

Agribusiness Management Test 3
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