Page 260 - DMGT405_FINANCIAL%20MANAGEMENT

Financial Management

Notes Raw materials: It is the input that is converted into finished goods through a manufacturing or
conversion process.
Work-in-progress: It is the stage of stocks between raw materials & finished goods.

11.9 Review Questions

1. Why is inventory management important?
2. Describe briefly three types of inventory costs associated with economic order quantity
and reorder point compensation.

3. What is meant by a reorder point? What factors affect the inventory reorder point?
4. How does uncertainty affect inventory management?
5. Describe perpetual inventory and periodic inventory system.
6. Do FIFO perpetual and FIFO periodic always yield the same inventory valuation? Do
LIFO perpetual and LIFO periodic always yield the same inventory valuation?
7. Compare the effect of LIFO and FIFO inventory valuation on the income statement and
balance sheet in periods of rising and falling prices.
8. What is meant by the ABC Inventory Control System? On what key promise is this system
based? What are its limitations?

9. What are likely to be the new points of each of the following managers about the levels of
the various types of inventories: field, marketing, manufacturing, purchasing? What is
inventory investment?
10. What factors make managing inventory more vital for companies regarding the issue of
effective working capital management?

Answers: Self Assessment
1. optimum size 2. Sale lag. 3. safety stock
4. stores and spares 5. minimum 6. Minimum level
7. Input Output ratio 8. EOQ 9. A

10. FIFO 11. Last In First Out (LIFO) 12. Average cost perpetual
13. product 14. specific identification 15. LIFO

11.10 Further Readings

Books Dr Pradeep Kumar Sinha, Financial Management, New Delhi, Excel Books, 2009.
Van Horne, J.C. and Wachowicz, Jr, J.M., Fundamentals of Financial Management,
New Delhi, Prentice Hall of India Pvt. Ltd., 1996, p. 2.
Chandra, P., Financial Management—Theory and Practice, New Delhi, Tata McGraw
Hill Publishing Company Ltd., 2002, p. 3.

254 LOVELY PROFESSIONAL UNIVERSITY