Cost Accounting For Dummies

Chapter 18

Making Smart Ordering Decisions

In This Chapter

Managing the cost of goods held for sale

Considering economic order quantity

Implementing just-in-time inventory management

Understanding the supply chain approach to inventory

Mulling over customer demand issues

Inventory is usually the largest investment for a business. When you consider how you use assets (cash, in this case), it’s likely that your inventory requires a big investment. If you’re a retailer, you probably spend a lot on money to stock the store. If you’re a manufacturer, you have significant materials costs to manufacture your product.

You have other costs for inventory, besides the goods. You incur a cost to order inventory as well, and when you receive the goods, someone needs to verify that you received what you ordered. Then (if you’re a retailer) you have to stock the shelves and put the rest of the inventory somewhere. That requires investing in space to hold stock. Oh, and don’t forget to protect your ...