06BSCMv30_VC.ppt

* * * * Notepad is stock #6241484 * * * * * * * * * * * * * * * * 7256685 * * * * * * * * * * * * * * * * * * * * * * * * * 5190263 * * * * * * * * * * * * * * * * * * * * * * * * * * * * ? 2009 APICS CONFIDENTIAL AND PROPRIETARY 6 ? * Problem 6.4 Solution If the owners’ equity is $1,000 and liabilities are $800, the assets are worth = $1,000 + $800 = $1,800 If the assets are $1,000 and liabilities are $600, the owners’ equity is = $1,000 – $600 = $400 ? 2009 APICS CONFIDENTIAL AND PROPRIETARY 6 ? * Income Statement Income = Revenue - Expenses Revenue Income from sales of goods and services Increases owners’equity Expenses Costs incurred inearning revenue Decreases owners’equity 266 ? 2009 APICS CONFIDENTIAL AND PROPRIETARY 6 ? * Income Statement Revenue $1,000,000 Cost of goods sold Direct labor $200,000 Direct material $400,000 Overhead $200,000 Total cost of goods sold - $ 800,000 Gross margin (gross profit) $ 200,000 General and administrative expense - $ 100,000 Net income (profit) $ 100,000 Taxes ? 2009 APICS CONFIDENTIAL AND PROPRIETARY 6 ? * Inventory and Financial Results So inventory on the books is not as good as inventory converted into products and then sold. Because raw material inventory is an expense on the income statement; it offsets revenue, which reduces assets. And WIP and finished goods inventory include allocations of direct labor and factory overhead – i.e., costs added in production – which also offset revenue and reduce assets. Inventory is an asset on the balance sheet, so why not have more of it? The sale of a manufactured product converts inventory and its built up costs into revenue, which includes a profit margin – i.e. the value added by the production process. Revenues are thus higher than costs, to the benefit of cash and owners’ equity on the balance sheet. From a supply chain management perspective as well, converting inventory quickly into sales is a major objective and has pos