...(1/a)*p I = Iq + Ip Flow Time = Tq + p Waiting Time Formula, Multi Parallel Resources (Servers) Utilization, u = (1/a)/(m x 1/p) = p/am Tq = (p/m) x (u^[√(2(m+1)-1)-1]/(1-u) x (CVa2+CVp2)/2 Iq = (1/a)*Tq Ip = u*m = (1/a)*p I = Iq + Ip Flow Time = Tq + p Waiting Time Formula, Single Server Utilization, u = Flow Rate/Capacity = (1/a)/(1/p) = p/a Inventory Related Measures Iq = (1/a) x Tq Ip = u I = Iq + Ip Time in queue, Tq = Activity Time (p) x (u)/(1-u) x (CVa2+CVp2)/2 Flow Time = Tq + p Waiting Time Formula, Single Server Utilization, u = Flow Rate/Capacity = (1/a)/(1/p) = p/a Inventory Related Measures Iq = (1/a) x Tq Ip = u I = Iq + Ip Time in queue, Tq = Activity Time (p) x (u)/(1-u) x (CVa2+CVp2)/2 Flow Time = Tq + p Inter-Arrival Time, a = amount of time between two arrivals to a process Arrival process is Stationary over a period of time if the number of arrivals on any sub interval depends only on length of interval, not on when interval starts a = average inter-arrival time (IAi+1 – IAi) Sa = standard deviation (absolute measure of variability) CVa = Standard deviation/average inter-arrival time (Sa/a) – relative variability CVp = Standard deviation/Average activity time (Sp/p) Abnormal peaks of processing time Would be more efficient to automate it Variability leads to waiting time (even if p/a < 100%) To predict waiting time even if u<100% Waiting Time Formula, Single Server Utilization, u = Flow Rate/Capacity = (1/a)/(1/p)...
Words: 1446 - Pages: 6
...Chapter 3: Process flow measures 3.3 Solutions to the Chapter Questions Discussion Question 3.1 The opposite of looking at average is looking at a specific flow unit’s flow time, and the inventory status and instantaneous flow rate at a specific point in time. Because flow times change from flow unit to flow unit, it is better to look at the average over all flow units during a period of time. Similar for inventory and throughput. [pic] Discussion Question 3.2 In practice, one often tracks inventory status periodically (each day, week, or month). Flow rate is typically also tracked periodically (even more frequently than inventory status because it directly relates to sales). It then is easy to calculate the average of those numbers to obtain average inventory and throughput during a period. In contrast, few companies track the flow time of each flow unit, which must be done to calculate the average flow time (over all flow units during a given period). [pic] Discussion Question 3.3 First, draw a process flow chart. Second, calculate all operational flows: throughput, inventory, and flow time for each activity. Third, calculate the financial flow associated with each activity. If the activity incurs a cost (or earns a revenue), the cost or revenue rate is simply the throughput times the unit cost or revenue. If the inventory incurs a holding cost, the inventory cost rate is simply the average inventory times the unit holding cost. Fourth,...
Words: 3357 - Pages: 14
...7/18/06 12:29 PM Page 335 Issue 3: Cost Flow Assumptions 335 EXHIBIT 7.3 Comparison of Cost Flow Assumptions, Historical Cost Basis Assumed Data Beginning Inventory: TV Set 1 Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchases: TV Set 2 Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TV Set 3 Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of Goods Available for Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sales: One TV set . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost Flow Assumption FIFO Financial Statements Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of Goods Sold . . . . . . . . . . . . . . . . . . . . . . . . . Gross Margin on Sales . . . . . . . . . . . . . . . . . . . . . . . Ending Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . aTV $250 290 300 $840 $550 Weighted Average (2) $550 280b $270 $560e LIFO (3) $550 300c $250 $540f (1) $550 250a $300 $590d set 1 costs $250. TV sets costs $280 ( cTV set 3 costs $300. bAverage dTV $840/3). sets 2 and 3 cost $290 $300 $590. average TV sets cost 2 $280 $560. fTV sets 1 and 2 cost $250 $290 $540. eTwo LAST-IN, FIRST-OUT The last-in, first out (LIFO) cost flow assumption assigns the costs of the latest units...
Words: 3314 - Pages: 14
...CHAPTER 6 Inventory Costing ASSIGNMENT CLASSIFICATION TABLE | | |Brief | |Problems |Problems | |Study Objectives |Questions |Exercises |Exercises |Set A |Set B | |1. Describe the steps in determining inventory|1, 2, 3, 4 |1, 2 | 1 | 1 | 1 | |quantities. | | | | | | |Prepare the entries for purchases and sales of |6, 8 | 3 | 2, 10 |2, 8, *9 |2, 8, *9 | |inventory under a periodic inventory system. | | | | | | |3. Determine the cost of goods sold under a | 5, 7, 8 |4, 5 | 3, 4 | 2 | 2 | |periodic inventory system. | | | | | | |4. Identify the unique features of the income |9 | 5, 6 | 5 | 2, 3 | 2, 3 | |statement for a...
Words: 3751 - Pages: 16
...CHAPTER 6 STATEMENT OF CASH FLOWS Questions, Exercises, and Problems: Answers and Solutions 6.1 See the text or the glossary at the end of the book. 6.2 One can criticize a single income statement using a cash basis of accounting from two standpoints: (1) it provides a poor measure of operating performance each period because of the inaccurate matching of revenues and expenses (see discussion in Chapter 4), and (2) it excludes important investing (acquisitions and sales of long-lived assets) activities and financing (issuance or redemption of bonds or capital stock) activities of a firm that affect cash flow. 6.3 Accrual accounting provides a measure of operating performance that relates inputs to outputs without regard to when a firm receives or disburses cash. Accrual accounting portrays the resources of a firm and the claims on those resources without regard to whether the firm holds the resource in the form of cash. Although accrual accounting may satisfy user’s needs for information about operating performance and financial position, it does not provide sufficient information about the cash flow effects of a firm’s operating, investing, and financing activities. The latter is the purpose of the statement of cash flows. 6.4 The statement of cash flows reports changes in the investing and financing activities of a firm. Significant changes in property, plant, and equipment affect the structure of assets on the balance sheet, for example, the age of the assets....
Words: 9074 - Pages: 37
...Analyzing Inventory Study Objectives. • Describe the steps in determining inventory quantities. • Explain the basis of accounting for inventories and apply the inventory cost flow methods under a periodic inventory system. • Explain the financial statement and tax effects of each of the inventory cost flow assumptions. • Explain the lower of cost or market basis of accounting for inventories. • Compute and interpret the inventory turnover ratio. • Describe the LIFO reserve and explain its importance for comparing results of different companies. Study Objective 1 - Describe the Steps in Determining Inventory Quantities 1. Merchandising Inventory (items held for sale to customers): a. In a merchandising company, inventory consists of many different items. These items have two common characteristics: i. They are owned by the company, and ii. they are in a form ready for sale to customers. iii. Only one inventory classification, merchandise inventory, is needed to describe the many different items that make up the total inventory. 2. Manufacturing Inventories: a. In a manufacturing company, some inventory may not yet be ready for sale. Inventory is usually classified into three categories: i. finished goods inventory—items that are completed and ready for sale, ii. work in process—that portion of manufactured inventory that has been placed into the production process but is not yet complete, and iii. raw materials inventory—the basic...
Words: 4827 - Pages: 20
...QUESTIONS 1. Cash flow from operations can offer a clearer picture of a company's performance than does net income when: • A company reports large noncash expenses, such as write-offs, depreciation, and provisions for future obligations. Earnings may give an overly pessimistic view of the firm. • A company is growing rapidly. Reported earnings may be positive, but operations are actually consuming rather than generating cash. • A company badly needs to report favorable earnings, as is the case before a major loan application or before a stock offering. In these cases, cash flow from operations provides an excellent reality check for reported earnings. 2. To qualify as a cash equivalent when preparing a statement of cash flows, an item must be (a) readily convertible to cash, and (b) so near its maturity that there is insignificant risk of changes in value due to changes in interest rates. As a general rule, only investments with original maturities of 3 months or less qualify. The original maturity is determined from the date of acquisition of the investment by the entity, not the date of original issuance of the security. 3. Operating activities include those transactions and events that enter into the determination of net income. Cash receipts from selling goods or from providing services are the major cash inflow for most businesses. Major cash outflows include payments to purchase inventory and to pay wages, taxes...
Words: 5337 - Pages: 22
...BP managing its working capital, and how does it compare to its competitors? Upon returning home, you decide to do a quick preliminary investigation using information freely available on the Internet. Task 1 Obtain BP’s financial statements for the past four years from Yahoo! Finance (http://finance.yahoo.com). See attachments Excel File: Case#3 Spreadsheet Task 2 Obtain the competitors' ratios for comparison from Yahoo! Finance (http://finance.yahoo.com). See attachments Excel File: Case#3 Spreadsheet Task 3 Compute the cash conversion cycle for BP for each of the last three years. To obtain the Average Inventory I took the inventory of the current year and the inventory of the previous year and divided it by 2. I decided for this method to generate the latest numbers for further calculations. To calculate the Average Age of Inventory I divided the Average Inventory by the Cost of Revenue for each year and multiplied by 365 days. In the next step...
Words: 2857 - Pages: 12
...CHAPTER 6 STATEMENT OF CASH FLOWS Questions, Exercises, and Problems: Answers and Solutions 6.1 6.2 See the text or the glossary at the end of the book. One can criticize a single income statement using a cash basis of accounting from two standpoints: (1) it provides a poor measure of operating performance each period because of the inaccurate matching of revenues and expenses (see discussion in Chapter 4), and (2) it excludes important investing (acquisitions and sales of long-lived assets) activities and financing (issuance or redemption of bonds or capital stock) activities of a firm that affect cash flow. Accrual accounting provides a measure of operating performance that relates inputs to outputs without regard to when a firm receives or disburses cash. Accrual accounting portrays the resources of a firm and the claims on those resources without regard to whether the firm holds the resource in the form of cash. Although accrual accounting may satisfy user’s needs for information about operating performance and financial position, it does not provide sufficient information about the cash flow effects of a firm’s operating, investing, and financing activities. The latter is the purpose of the statement of cash flows. The statement of cash flows reports changes in the investing and financing activities of a firm. Significant changes in property, plant, and equipment affect the structure of assets on the balance sheet, for example, the age of the assets. Significant changes...
Words: 9785 - Pages: 40
...INVENTORIES QUESTIONS: 1. Write down the definition of ‘Inventory’ under IAS-2. What physical materials does ‘Inventory’ include? 2. According to IAS-2, what are the components of non-components of Inventory Cost? 3. Distinguish between ‘Perpetual’ and ‘Periodic’ system for recording Inventory? Show proper examples. 4. What are the Cost Flow Formulas/Assumptions allowed in IAS-2 for maintaining Inventory? Show examples. Which one should be used in what situation? 5. Explain LIFO? Why LIFO is not permitted in IAS-2. Do you think repealing LIFO was wise decision of IASB? Discuss with its advantages & disadvantages. 6. What is NRV of an asset? When should company write down its inventories to NRV? Explain write-down processes with illustrations. * Write down the definition of ‘Inventory’ under IAS-2. What physical materials does ‘Inventory’ include? * Paragraph-6 of IAS-2 defines inventories as following- 1. Held for sale in ordinary course of business 2. In the process of production for such sale 3. in the form of materials or supplies to be consumed in the production process or in the rendering of services. This definition implies that 3 types of physical materials are to be included in ‘Inventories’- a) Raw Materials b) Work in process c) Finished Goods * According to IAS-2, what are the components of non-components of Inventory Cost? * Components of Inventory Cost: 1) Cost of Purchase Includes-...
Words: 1781 - Pages: 8
...statement of cash flows suggests that this strategy was implemented during year 8. Specifically, during that year the cash flows of Land’s End to build up its inventory to implement its new policy are very high---$104.545 million cash outflow to acquire additional inventory. 2. Depreciation expense represents the allocation of the cost of fixed assets over the useful life of the asset. Amortization expense represents the allocation of the cost of intangible assets over the useful life of the asset. In each of these cases, the investing cash outflow occurs when the asset is acquired and not when its cost is subsequently allocated to expense. a. Increases in receivables cause operation cash flows to be less than net income because revenues (reflecting receivables) are included in the net income, but the related cash may not yet be received. On the other hand, decreases in receivables cause operating cash flows to be greater than net income because cash is received for revenues recognized in prior periods. b. Decreases in inventory causes net income to be higher than operating cash flows because sales revenue is recognized when earned but the inventory sold can be paid for in earlier periods. Increases in inventory cause operating cash flows to be less than net income because cash was used to increase inventory levels. When these inventories are subsequently sold revenues will be earned and net income will be increased. However, this inventory will be expensed...
Words: 395 - Pages: 2
...the inventory control system for XXXXX and describe its purpose, critical aspects and objectives. This report will review its faults and challenges, then describe solutions which will produce measurable results. Purpose of an Inventory Control System The inventory control system is the mechanism within a company that is used for efficient management of the movement and storage of raw material, work in process, finished goods, effective utilization of people and equipment, and the communication of this information within the organization and its customers. The inventory control system provides the vital information needed for managers to make decisions. Critical Aspects and Objectives of an Inventory Control System The main goals of an inventory-control system are distributing product to customers on time and as cost-effectively as possible. With this said, the main objectives of the inventory control system are to avoid back-orders while avoiding excess inventory, provide for the efficient movement of goods, and to maximize profit margins while maintaining sustainable cash flow. Avoiding back-orders: Back-orders are costly. You want to make sure that the company has sufficient stock on hand to deliver to customers when they want the product. A defined replenishment system is critical to maintain inventory at sufficient levels to meet customer demands. Seeing as it costs time and money to promote products and attract customers, it is important to have inventory on hand...
Words: 1259 - Pages: 6
...CRU COMPUTER RENTALS CASE CRU Computer Rentals Flow Chart Customer Receiving Repairs Pre-Config Repairs Status 24 Status 41 Config 30% 70% 15% Ship Status 32 Ship CRU situation last year: TABLE 1: process flow data | | | | | | | | | | | | | | | | | | | | Customer | Receiving | Status 24 | Status 40 | Stored orders | Suppliers | Status 41 | Status 42 | Status 20 | | (rented units) | (received units) | | | | | | | | | | | | | | | | | | Thoughput | 1,000 | 1,000 | 700 | 405 | 405 | 405 | 405 | 405 | 1,000 | (units/week) | | | | | | | | | | | | | | | | | | | | Inventory | 8,000 | 500 | 1,500 | 1,000 | 500 | 405 | 905 | 500 | 2,000 | (units) | | | | | | | | | | | | | | | | | | | | Flow time | 8.00 | 0.50 | 2.14 | 2.47 | 1.23 | 1.00 | 2.23 | 1.23 | 2.00 | (weeks) | | | | | | | | | | | Customer term = 8 weeks, Demand = 1000 units/week | | | | | | | Number in black are given and number in red are calculated using Little's Law | | | | | | | | | | | | | | * Number of units on rent = 8,000 * Total number of Units owned by CRU (total inventory) = 14,405 * Utilization achieved= 8000/14,405 = 55.5% * Average time spent by a unit in each buffer is the average flow time per buffer calculated in the table 1 * Revenue per week = 8000...
Words: 1730 - Pages: 7
...EXERCISE 8-5: (a) Inventory December 31, 2014 (unadjusted) $234,890 Transaction 2 13,420 Transaction 3 12,800 Transaction 4 15,630 Transaction 5 8,540 Transaction 6 (10,438) Transaction 7 (10,520) Transaction 8 1,500 Inventory December 31, 2014 (adjusted) $171,872 (b) Transaction 3 Sales Revenue............................................... 12,800 Sale on Account........................................................................ 7,350 (To reverse sale...
Words: 1746 - Pages: 7
...Logistics Management “Logistic is the process of planning, implementing and controlling the efficient, effective flow of goods storage of goods, services and related information from the point of origin to the point of consumption for the purpose of conforming to customer requirements” Logistics exists to satisfy customer requirements by facilitating relevant manufacturing and marketing operation. The main responsibility of logistic is the geographical positioning of raw materials, work in process and finished inventories at the lowest possible cost. Creating logistics value is costly. Logistics accounts for one of the highest costs of doing business. Logistics expenditure normally ranges from 5% to 35% of sales depending on the type of business. Thus logistics even though very important for any business success is expensive. VARIOUS DEFINITIONS OF LOGISTICS MANAGEMENT Logistic management encompasses all materials flows management, from the inflow of purchased materials into works (i.e. materials planning of raw materials components and other products, transport of materials from suppliers to works, receiving and inspection and storage of materials) materials flow through manufacturing processes (i.e. materials issues and materials handling) and material (flow to customers (physical distribution (Refer fig.1 for these relationships) Materials Logistics physical distribution Management Management Fig.1 (Relationship between logistics and other)...
Words: 1704 - Pages: 7
