Fundamentals of Financial Management, Third Edition

POINTS TO REMEMBER

1. What are the benefits of holding inventory?
   • It meets the transaction needs, precautionary needs and the speculative needs of the operation.

    

2. What are the costs of holding inventory?
   • The costs having direct relationship with holding of inventory, are material cost, holding cost and financing cost.
   • The costs having inverse relationship with holding of inventory are order cost and stock-out cost.
3. What is ABC analysis?
   • Classification of inventory based on its importance and cost.

    

4. What is EOQ?
   • The size of a particular order where the order cost equals the holding cost of the average size of inventory or, in other words, the total cost is the minimum. In terms of equation,
5. At what point of time, the subsequent order ...