Introduction to Inventory Control Model

Inventory Control Models

Inventory is an expensive and important asset to many companies or organization or institution.

Some Feature of Inventory Control Models

01. Lower inventory levels can reduce costs.

02. Low inventory levels may result in stockouts and dissatisfied customers

03. Most companies try to balance high and low inventory levels with cost minimization as a goal

04. Inventory is any stored resource used to satisfy a current or future need
Common examples are raw materials, work-in-process, and finished goods

05. Inventory may account for 50% of the total invested capital of an organization and 70% of the cost of goods sold

06. All organizations have some type of inventory control system

07. Inventory planning helps determine what goods and/or services need to be produced

08. Inventory planning helps determine whether the organization produces the goods or services or whether they are purchased from another organization

09. Inventory planning also involves demand forecasting

Inventory planning and control

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Introduction of Project Management

Project Management

Most realistic projects are large and complex in decision making.

Tens of thousands of steps and millions of dollars may be involved
Managing large-scale, complicated projects effectively is a difficult problem and the stakes are high

The first step in planning and scheduling a project is to develop the work breakdown structure

Time, cost, resource requirements, predecessors, and people required are identified for each activity

Then a schedule for the project can be developed

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The Importance of Accounting

The Importance of Accounting in Today’s World

Importance of Accounting

The Importance of Accounting as a Separate Discipline

In the business world, accounting is one discipline of study that all people in the world, regardless of job position, should have some knowledge of. Accounting's concepts can be applied to all job specialties, Accounting is importance has been promoted in recent years, and Accounting is useful in people’s everyday lives.


First, an accounting education is important because accounting as a discipline can be applied in all job specialties. Secretaries must use accounting skills to manage the company check book and orders, auditors have to study financial statements to evaluate the accuracy and integrity of the business, and executives need to judge the success of their business using accounting statements from the past and present. These are just a few of the many possible positions where an understanding of accounting is necessary.

Another reason all business students should have some background in accounting is because in recent years, people in the business world have been held more accountable for their financial practices. Since the Enron and WorldCom crisis when independent auditor Arthur Anderson failed to report illegal accounting practices, the SEC has been monitoring public corporations more closely. Thus, companies require some basic knowledge of accounting to avoid any future misstatements unintentionally occurring.

Additionally, Accounting is vital that everyone, not just business students, acquire an understanding of accounting for personal benefit. People use accounting in their daily lives when they study financial statements to make investment decisions, assess interest rates to pay off their house mortgages, and calculate rates for car payments. In the business world, accounting is utilized in much greater depth, but each individual encounters some activities in his/her everyday life that requires knowledge of accounting principles. Accounting is the most basic framework of business in the today's world. Without an accounting education, students would be unprepared for the real world.

Importance of Accounting in Business

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Concept of Weighted average cost of Capital

Generally the cost of capital of a firm is the weighted average cost of various source of finance used by it. If the firm uses n different sources of finance, its WACC is .

WACC = ∑xiki

where x is the proportion of ith source of finance and ki is the cost of the ith source of finance.
Suppose that a firm uses equity costing 15% and debt costing 8% . If the proportions in which the equity and debt are used are respectively 40% and 60%, its WACC will be:

WACC = Proportion of equity x Cost of equity + Proportion of debt x C =0.40x 15%+0.60x8%
=6%+4.8%
= 10.8%


The following three steps are involved in calculation of cost of capital (WACC)
"

•Determinateof the cost of different components of capital
•Establish a set of weights (proportions)
•C-1culate the weighted average cost of capital

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Assumptions of Cost of Capital

Cost of capital is a dynamic concept. It is affected by various factors like internal and external factors. The different considerable factors to calculate weighted average cost of capital are discussed below:

1.Business risk to be unchanged
2.Financial risk to be unchanged
3.After tax cost

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Significance of the cost of capital (Briefly)

Evaluating investment decision.

The primary purpose of measuring the cost of capital is its use as a financial standard for evaluating the investment projects. In the NPV method, an investment project is accepted if it has a positive NPV. The project's NPV is calculated by discounting its cash flows by the cost of capital. In this sense, the cost of capital is the discount rate used for evaluating the desirability of an investment project In the IRR method, the investment project is accepted if it has an internal rate of return greater than the cost of capital. In this context, the cost of capital is the minimum required rate of return on an investment project. It is also known as the cutoff rate, or the hurdle rate.

Designing a firm's debt policy.

The debt policy of a firm is significantly influenced by the cost consideration. As we shall learn later on, debt helps to save taxes, as interest on -debt is a tax-deductible expense. The interest tax shield reduces the overall cost of Capital; thought also increases the financial risk of the firm. In designing the financing policy, that is, the proportion of debt and equity in the capital structure, the firm aims at maximizing the firm value by minimizing the overall cost of capital. Cost of capital can also be useful in deciding, about the methods of financing at a point of time. For example, cost may be compared in choosing, between leasingand borrowing. Of course, equally important consummations are control and control and risk.'

Appraisingthe financial performance of top management.

The cost of capital framework can be used to evaluate the financial performance of top management. such an evaluation will involve a comparison of the investment project understand by the firm with the overall projected cost of capital.

Determining the value of the firm.

The objective of financial management is wealth maximization. Cost of Capital is the important element for valuation of firms and it plays significant role in the case of valuation of firms.

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Significance of the cost of capital

Cost of capital is a concept of vital importance in the financial decision-making. It is useful as a standard for:
• Evaluating investment decisions,
• Designing a firm's debt policy, and
• Appraising the financial performance of top management
• Designing, dividend policy
• Determining the value of the firm

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