EOQ is the acronym for economic order quantity. The economic order quantity is the optimum quantity of goods to be purchased at one time in order to minimize the annual total costs of ordering and carrying or holding items in inventory.EOQ is also referred to as the optimum lot size.The formula to calculate the economic order quantity is the square root of [(2 times the annual demand in units times the incremental cost to process an order) divided by (the incremental annual cost per unit to carry an item in inventory)].
HOLDING COST
Interest on fund borrowed
Storage charges (rent)
Insurance and security
Cost of obsolescence of stocks
ORDERING COST
Clerical costs preparing purchase order and transportation
ORDERING COST
Cost without having stock
Loss of contribution
Loss of customer future sale/goodwill
Production stoppage
Let's try this!Annual demand quantity : 1500 unitsOrdering cost: RM30 per orderCost per unit of item: RM5Holding cost: 20% of inventory costCalculate the EOQ.Another one...Nadzmi runs a mail-order business for gym equipment. Annual demand for the AbsFlexer is 16,000. The annual holding cost per unit is $2.50 and the cost to place an order is $50. What is the economic order quantity?However, the EOQ implementation has to be based on the following assumptions....Assumptions:
Demand is constant
Holding and ordering cost are constant
Unit price is constant
Quick delivery
Replenishment is made instantaneously (the whole batch is delivered at once)
Looking at the topic that is Long Term Financial Planning and Corporate Growth, I just break it down to some general areas to get your brains working. Long term means for a very lengthy duration. It could be more than a year (if you consider one year is long enough), or it can be 5 years, 10 years, 15 years. For example, the plan formulated by our Prime Minister (hmmm...) TN50 (Transformasi Nasional 2050) a plan which heading to the year 2050 with much development we are going to do and many things we going to achieve. Talking about numbers... a lot! A lot of effort, sweat, ideas to achieve the desired TN50 (and a lot they can make too!) Hahaha.
So, what is the long term is for? It is about financial planning. The same thing you plan what you gonna be in 5 years from now. Simple, what you want to eat tomorrow, you have to start thinking from today, If you want to eat a nice succulent steak at super duper expensive restaurant, you have to start finding some money for it. Of course, you need to plan your finance, how much to have, how to save, how to spend and most importantly, how to start. So now, you have Long Term Financial Planning... It is a plan to finance you for your future. Simple, kan, kan, kan?
Lastly is Corporate Growth..Why are you studying this for? Of course, if it is not for you, then it will be for those companies you gonna serve. By having good financial planning, you can build the organization, the empire and your life, stay there for a long long time. There is nothing gonna stop you. Speaking about nothing gonna stop us from planning, Then I will treat you with an old song, Nothing's Gonna Stop Us Now. After that, we will continue with the topic....see ya later!
Financial planning (business)
From Wikipedia, the free encyclopedia
Financial planning is the task of determining how a business will afford to achieve its strategic goals and objectives. Usually, a company creates a Financial Plan immediately after the vision and objectives have been set. The Financial Plan describes each of the activities, resources, equipment and materials that are needed to achieve these objectives, as well as the time frames involved.
The Financial Planning activity involves the following tasks;----
Assess the business environment
Confirm the business vision and objectives
Identify the types of resources needed to achieve these objectives
Quantify the amount of resource (labor, equipment, materials)
Calculate the total cost of each type of resource
Summarize the costs to create a budget
Identify any risks and issues with the budget set
Performing Financial Planning is critical to the success of any organization. It provides the Business Plan with rigor, by confirming that the objectives set are achievable from a financial point of view. It also helps the CEO to set financial targets for the organization, and reward staff for meeting objectives within the budget set.
The role of financial planning includes three categories:
Strategic role of financial management
Objectives of financial management
The planning cycle
When drafting a financial plan, the company should establish the planning horizon,[1] which is the time period of the plan, whether it be on a short-term (usually 12 months) or long-term (2–5 years) basis. Also, the individual projects and investment proposals of each operational unit within the company should be totaled and treated as one large project. This process is called aggregation.[2]
CORPORATE GROWTH
Corporate growth can be defined in numerous ways and be achieved in several strategic forms. In general, the matter of whether—and at what rate—a company is growing can be highly ambiguous. A company can experience strong sales growth, but simultaneously be losing market share and experiencing financial losses. In such a case, the company's volume is rising, but that of its competitors is rising even faster. And, on the bottom line, sales growth means little when the company cannot turn a profit.
The same company may be gaining market share, but losing sales volume and money. This suggests that volume is falling throughout the industry, but only less so for this company. In any case, it still loses money on its operations.
Consider a third case, where a company's earnings are rising, but it's losing sales volume and market share. This is quite possibly the only favorable scenario, because it suggests that the company is cutting marginal operations to concentrate on what it does best—in effect, becoming smaller but more profitable.
While these criteria can provide some insight into the true nature of the firm—whether it really is growing or not—they also can provide some indication of what type of firm the company is: a dog, a question mark, a cash cow, or a star.
A dog is a company with low or declining market share and low or declining market growth, typically a description of a dying firm. A company with low or declining market share but a high rate of sales growth is a question mark, because its success depends on whether it can outperform competitors in terms of sales growth and eventually gain market share.
Alternatively, a company with low or declining sales growth but high or increasing market share is a cash cow because its position in the market is secure even though the industry in which it operates has matured. Such a company is typically overrun by successful question marks and becomes a dog. In the meantime, however, it generates a healthy income.
A company with high or growing market share and high or growing sales volume is called a star because it is outperforming its competitors. Dogs typically lose—or will lose—money, while stars typically make—or will make—money.
Whether in terms of market share or sales volume, growth may be pursued in one of three ways. In a high-growth company, either or both market share and sales volume growth are pursued vigorously, even at the expense of short-term profitability. This is a risky strategy because the company risks going bankrupt before it can achieve commanding positions in terms of market share and/or sales volume.
A slow-growth company concentrates on maintaining profitability while pursuing incremental gains in market share and/or sales volume. The slow-growth strategy emphasizes financial longevity.
The third growth strategy is based on negative growth, or retrenchment. A company in retrenchment is purposely sacrificing market share and sales growth with the singular goal of emphasizing short-term profitability. In other words, the company is abandoning operations in markets where it has the fewest advantages, vis-à-vis competitors.
When the retrenchment has run its course, the company is left with a core business in which it enjoys solid advantages over competitors, and may take advantage of its superior profitability to pursue either a high- or slow-growth strategy. In effect, retrenchment strategies establish bases for the other growth strategies.
OTHER ASPECTS OF CORPORATE GROWTH
Whether a company is in a growth industry or a mature market, corporate growth is necessary for a company to remain healthy. Companies that compete in a growing market must grow in order to maintain market share. Without such growth, they fail to realize benefits of growth such as economies of scale and the ability to attract talented managers and employees. Especially in global markets, economies of scale allow growing companies to make significant investments in research and development and worldwide marketing.
Similarly, companies competing in mature markets must find ways to grow. Otherwise, they are forced to compete on the basis of price and face declining margins. In order to achieve growth such companies typically exit slow-growth products or market segments that aren't very profitable and enter those markets or related markets that are growing more quickly. They may develop and nurture new businesses that will replace or complement their maturing core business. Other growth strategies for companies competing in mature markets include acquiring smaller competitors or consolidating fragmented industries into a single-source operation. Growth companies in mature industries may include electric utilities, large retailers, and railroad companies.
As desirable as corporate growth may be, a study, conducted by the Corporate Strategy Board, of 3,700 U.S. and international companies for the period from 1990 to 1997 found that only 3.3 percent of those companies had consistent profitable growth in revenues, net income, and shareholder returns for the period. Of the companies studied, only 21, or less than I percent, achieved consistent growth over the past 20 years.
Well, as promised, below are the answers for relevant and irrelevant cost...
Solution - Relevant and irrelevant costs
We have two alternatives: (a) dental care division is sold off and (b) dental care division continues to operate. Identifying relevant costs and irrelevant costs is easy when we see if a cost changes between two alternatives or not. If it changes it is relevant, if it doesn’t it is irrelevant.
CEO’s salary is irrelevant because it shall remain the same whether the dental care division exists or it is disposed off.
Salaries of employees who can be laid off is relevant because the cost shall continue to be incurred if the division exists but it shall be reduced to zero if the division is disposed off.
Salaries of employees who can’t be laid-off is irrelevant because it shall continue to be incurred regardless of whether the division is disposed off or not.
One-time retirement benefits cost is relevant because it shall be incurred only if the division is disposed off. If the division continues to operate, the cost shall continue to be incurred.
Cost of raw materials is relevant cost because it shall be zero if the division no longer operates because then there will be no production.
Annual directors fee is irrelevant cost because it shall stay the same even if dental care is disposed off.
Interest paid on dental care division loans is relevant because if the division is sold off the loan could be paid off which shall cease the interest cost.
Salary of the dental care chief operating officer is relevant because he will most likely lose his job. If he is accommodated in another division, this cost shall be irrelevant.
Company-wide quality certification fee is irrelevant because it shall continue to be incurred even if dental care division is no longer there.
License fee paid for manufacturing dental care products is a relevant cost because it shall cease with disposal of the division.
Head office rent is irrelevant because it shall remain the same regardless of the number of divisions. If a division is sold-off, head-office will still exist and the office rent shall be incurred.
Audit fee is irrelevant if it does not depend on the number of divisions. Audit shall be conducted even if there is one division less.
Solution - Controllable and Uncontrollable Costs
The controllable costs are: direct materials, direct labor, indirect materials, and indirect labor (supervision). Depreciation, insurance, allocated repairs and maintenance, and allocated rent and utilities expense are not under the influence of the production manager. Under responsibility accounting, managers are evaluated based on costs that they can control. Hence, uncontrollable costs are ignored in evaluating managers.
Effective from today onwards, our class BUS1233 Section 2 (1400-1530hrs) will be relocated to E-203. Sorry I just being notified through system at the very last minutes....
So far, there are no questions from you guys, so I assume that all of you understood. Attached is the word documents containing simple accounting exercises. I hope you manage to do them and if you do them on by yourself without discussion, it is even better! Potential marks ♥♥♥♥
