Finance Numericals

Bill Receivable: It is a bill of exchange which is written by creditor and accepted by the debtor. It states that the debtor owed certain amount for receiving the services or goods provide by creditor and the debtor must pay that amount on specified date mention on the bill. The bill receivable acts as asset for the company who sell the goods on credit to debtor (customer) because company receives the price of goods or services from customer (debtor). It is also known as accounts receivable. Uses of Bill Receivable: ·          Bill discounting: If there is an immediate cash requirement in a company in that case bills are discounted in bank. It means bills are presented in banks to pay the amount of the bill before the time of maturity. The bank will pay the amount of bill after deducting their fees for rendering the services to the company. So, that’s why it is known as bill discounting. ·        ...

Economic Order Quantity: It is an amount of stock ordered which minimises the total cost of production or we can say minimise the ordering cost and carrying cost. Assumptions: ·          The lead time is constant. ·          The demand rate remains constant and evenly spread throughout the year. ·          The ordering cost and carrying cost remain constant and it doesn’t change with change in ordered quantity. ·          There is only two cost involved in inventory that is ordering cost and carrying cost. Formula: Q = √ (( 2*D*S)/ H) N= D/ Q Annual holding cost = H * (Q / 2) Annual Ordering cost = S * (D / Q) ∆π = D * d + [(D / Q EOQ ) – (D / Q DO )] S – [((Q DO – (P-d) H)/ 2) – ((Q EOQ * P*H)/ 2)] Where, Q = Economic order quantity D = Annual demand or sales S = Order cost P = Price pe...

Safety Stock: An extra stock kept by the company to minimize the risk of stock-out. It acts as a cover against supplier lead time, production lead time, customer demand etc of uncertain activities which affects the stock level. It helps to continue the production activities. It is also known as buffer stock. Formula: Safety stock = (Maximum daily usage*Maximum lead time) – (Average daily usage*Average lead time) OR Safety Stock = Z*standard deviation lead time* average daily demand Where, Z = service level Stock-out: It is a situation when stocks are not available for sale or at the time of requirement. Lead Time: It is a time gap between issuing the purchase order and receiving the ordered product. Reason to maintain Safety Stock: ·          It is good to maintain safety stock when the lead time (time between issuing the purchase order and receiving the ordered product) will increase. ·    ...

There are some techniques which help the company to control the inventory management by reducing the losses and time of delivering the goods to customer of a company. Some of the techniques are: 1)       Just In Time: In this technique the stocks are ordered when it is demanded by customer or required to fulfil the market demand. It reduces the carrying cost. 2)       ABC Analysis: In this technique the stocks are classified into A items, B items and C items. a)       A items: The stocks which are high in value but low in quantity and needed constant supervision is come under this category. b)       B items: The stocks which are moderate in value it means not high or not low and also moderate in quantity and needed moderate supervision is come under this category. c)       C items: The stocks which are low in value but high in quantity an...