Inventory is everything a business owns today for the purpose of selling tomorrow .

What is the difference between raw materials and components ?

Raw materials are basic inputs not yet processed . Components are parts bought in and ready to use in production.

Products that are fully made and awaiting sale are classed as ______ goods.

Products that are fully made and awaiting sale are classed as finished goods.

Why do businesses hold inventory ?

Businesses hold inventory to meet unexpected increases in demand and to gain bulk-buying discounts . It also keeps production continuous and helps a business cope with seasonal demand .

Define inventory management .

Inventory management means planning and controlling the amount, location and movement of stock a business holds.

True or False? Holding too much inventory can raise a business's storage costs and increase the risk of spoilage.

True. Excess inventory raises storage costs and increases the risk of spoilage and shrinkage . Surplus stock may also have to be sold at a lower price .

What are the risks of holding too little inventory ?

A business may run out of inventory , causing production stoppages . Underused capacity then leads to higher unit costs .

The lead time is the amount of time that passes from placing an order until inventory is delivered .

A business selling ________ goods, such as fresh food, must hold inventory in smaller quantities to avoid waste.

A business selling perishable goods, such as fresh food, must hold inventory in smaller quantities to avoid waste.

How does the reliability of suppliers affect the amount of inventory a business holds?

Unreliable suppliers encourage a business to hold more inventory . Dependable suppliers allow a business to maintain lower stock levels .

Define just-in-time (JIT) .

Just-in-time (JIT) is an approach where raw materials and components are ordered as required and delivered at precisely the time they are to be used in production.

What are the main disadvantages of the just-in-time approach?

JIT means bulk-buying economies of scale are generally not possible, and unreliable suppliers can quickly halt production. Frequent ordering also brings high administration costs .

Define just-in-case inventory management .

Just-in-case inventory management involves a business holding raw materials, components or finished goods as buffer stock in case of shortages .

True or False? Just-in-case inventory management ties up less cash than the just-in-time approach.

False. Holding buffer stocks ties up cash that could be invested elsewhere, whereas JIT improves cash flow because less money is tied up in stock.

Define inventory turnover .

Inventory turnover measures how many times a business sells and replaces its stock of inventory over a given period, usually a year . Inventory turnover = Cost of sales ÷ Average inventories held

True or False? A lower inventory turnover can suggest that a business's stock is moving slowly or that it is overstocked.

True. A higher inventory turnover generally shows stock is being sold quickly and efficiently. A lower figure can suggest stock is moving slowly or the business is overstocked .

Why do businesses monitor their inventory turnover?

Monitoring it helps a business assess how efficiently stock is managed and compare performance over time . It also helps spot problems such as overstocking or weak sales before they become serious.

How is average inventory calculated?

Average inventory is calculated using this formula: Average inventory = (Opening inventory + Closing inventory) ÷ 2

Cost of sales, also called cost of goods sold, is the ____ cost of producing or buying the goods a business has sold in a period.

Cost of sales, also called cost of goods sold, is the direct cost of producing or buying the goods a business has sold in a period.

A business has opening inventory of £72,870, closing inventory of £54,920 and cost of sales of £482,000. What is its inventory turnover ?

Average inventory is (£72,870 + £54,920) ÷ 2 = £63,895. Inventory turnover is £482,000 ÷ £63,895 = 7.54 times a year.

What are the benefits to a business of a rise in inventory turnover ?

A rise means stock is sold and replaced more frequently , so less cash is tied up in inventory. It can also reduce storage costs .

A LevelBusinessAQAFlashcardsManaging OperationsInventory Management

Inventory Management (AQA A Level Business): Flashcards

Exam code: 7132

1/21

0Still learning

Know0

FrontEffective Management of Inventory
Define inventory.

Was this flashcard helpful?

Cards in this collection (21)

Define inventory.
Inventory is everything a business owns today for the purpose of selling tomorrow.
What is the difference between raw materials and components?
Raw materials are basic inputs not yet processed. Components are parts bought in and ready to use in production.
Products that are fully made and awaiting sale are classed as ______ goods.
Products that are fully made and awaiting sale are classed as finished goods.
Why do businesses hold inventory?
Businesses hold inventory to meet unexpected increases in demand and to gain bulk-buying discounts. It also keeps production continuous and helps a business cope with seasonal demand.
Define inventory management.
Inventory management means planning and controlling the amount, location and movement of stock a business holds.
True or False?
Holding too much inventory can raise a business's storage costs and increase the risk of spoilage.
True.
Excess inventory raises storage costs and increases the risk of spoilage and shrinkage. Surplus stock may also have to be sold at a lower price.
What are the risks of holding too little inventory?
A business may run out of inventory, causing production stoppages. Underused capacity then leads to higher unit costs.
Define lead time.
The lead time is the amount of time that passes from placing an order until inventory is delivered.
A business selling ________ goods, such as fresh food, must hold inventory in smaller quantities to avoid waste.
A business selling perishable goods, such as fresh food, must hold inventory in smaller quantities to avoid waste.
How does the reliability of suppliers affect the amount of inventory a business holds?
Unreliable suppliers encourage a business to hold more inventory. Dependable suppliers allow a business to maintain lower stock levels.
Define just-in-time (JIT).
Just-in-time (JIT) is an approach where raw materials and components are ordered as required and delivered at precisely the time they are to be used in production.
What are the main disadvantages of the just-in-time approach?
JIT means bulk-buying economies of scale are generally not possible, and unreliable suppliers can quickly halt production. Frequent ordering also brings high administration costs.
Define just-in-case inventory management.
Just-in-case inventory management involves a business holding raw materials, components or finished goods as buffer stock in case of shortages.
True or False?
Just-in-case inventory management ties up less cash than the just-in-time approach.
False.
Holding buffer stocks ties up cash that could be invested elsewhere, whereas JIT improves cash flow because less money is tied up in stock.
Define inventory turnover.
Inventory turnover measures how many times a business sells and replaces its stock of inventory over a given period, usually a year.
Inventory turnover = Cost of sales ÷ Average inventories held
True or False?
A lower inventory turnover can suggest that a business's stock is moving slowly or that it is overstocked.
True.
A higher inventory turnover generally shows stock is being sold quickly and efficiently. A lower figure can suggest stock is moving slowly or the business is overstocked.
Why do businesses monitor their inventory turnover?
Monitoring it helps a business assess how efficiently stock is managed and compare performance over time. It also helps spot problems such as overstocking or weak sales before they become serious.
How is average inventory calculated?
Average inventory is calculated using this formula:
Average inventory = (Opening inventory + Closing inventory) ÷ 2
Cost of sales, also called cost of goods sold, is the ____ cost of producing or buying the goods a business has sold in a period.
Cost of sales, also called cost of goods sold, is the direct cost of producing or buying the goods a business has sold in a period.
A business has opening inventory of £72,870, closing inventory of £54,920 and cost of sales of £482,000. What is its inventory turnover?
Average inventory is (£72,870 + £54,920) ÷ 2 = £63,895. Inventory turnover is £482,000 ÷ £63,895 = 7.54 times a year.
What are the benefits to a business of a rise in inventory turnover?
A rise means stock is sold and replaced more frequently, so less cash is tied up in inventory. It can also reduce storage costs.

Sign up to unlock flashcards

By signing up you agree to our Terms and Privacy Policy

Previous:Supply Chain ManagementNext:Innovation