2. Accounts Receivable
Management
Terms of Sale
Quoted as a/b net c , which means
“deduct a% if paid within b days,
otherwise pay within c days.”
Example: 3/30 net 60 means
“deduct 3% if paid within 30 days,
otherwise pay the entire amount
within 60 days.”
3. Accounts Receivable
Management
Terms of Sale
Annualized opportunity cost of
foregoing a discount:
4. Accounts Receivable
Management
Terms of Sale
Annualized opportunity cost of
foregoing a discount:
a 360
x
1-a c - b
5. Accounts Receivable Management
a 360
x
1-a c - b
opportunity cost of foregoing 3/30 net 60:
.03 360
1 - .03
x 60 - 30
= 37.11%
6. Inventory Management
Too much inventory is expensive
and wasteful.
Not enough inventory can result
in lost sales.
7. Inventory Management
Raw materials inventory - basic materials
to be used in the firm’s production
operations.
Work-in-process inventory - partially
finished goods requiring additional work
before becoming finished goods.
Finished-goods inventory - completed
products that are not yet sold.
Stock of cash - inventory of cash to allow
payment of bills.
9. Inventory Management
Q* = 2SO
C
Q = inventory order size in units
C = cost of carrying 1 unit in inventory
S = total demand in units over planning
period
O = ordering cost per order
10. Example: Inventory Management
Q* = 2SO
C
Q = inventory order size in units
C = cost of carrying 1 unit in inventory = 1.25
S = total demand in units over planning
period = 10,000 units
O = ordering cost per order = $250