Huolong's CIMA

The minimum stock level and the safety stock level

Huolong — Mon, 24 Mar 2008 22:46:42 +0800

I don’t understand how the following formula is derived:

Min. level = Reorder level - (average lead time X average usage).

But, as I would think, a minimum level of stock is a level at which a reorder must be placed so that the reorder can arrive just in time to replenish a stock level to last the mimimum lead or delivery time before another such replenishment starts.

a) The shortest period a reorder can wait is the minimum lead or delivery time during which a stock level can be replenished just in time to eliminate a potential stock-out; and

b) The minimum time during which the minimum stock level can be exhausted is when the usage per unit period reaches its lowest (correction: highest) point, i.e. minimum (correction: maximum) usage.

So, the minimum level of stock = minimum lead time X minimum usage.

~~Sounds logic. But this formula gives different results than the textbook one~~.*

Now, “safety stock“. By “safety”, we should mean that this stock level is “safe” enough to sustain the minimum delivery or lead time during which the maximum usage is reached, i.e. minimum delivery or lead time X maximum usage. So, this is my idea of safety for a stock level: I wouldn’t have to worry about a stock-out. Or rather, this level is the one that I’ve come to believe is safe after considering an accurate record of past stock performance and predictable future usage, and reorders supplied on time… In one word, everything else should be okay for this level to work.

*This all depends on how “they” define a “minimum” level.

“So, which Accounting Certification is for you?”

Huolong — Fri, 21 Mar 2008 12:47:50 +0800

Here is an interesting blog post discussing today’s accounting qualifications and certificates.

“With the plethora of accounting certifications and qualifications out there today, no matter what country you are in, it can be a daunting task to choose which certification is right for you. Gone are the days when if you were a young fellow who aimed toward getting the Certified Public Accountant Certification (CPA) issued by the AICPA in the US; gone are the days when you could just become a Chartered Accountant (CA) in the UK, or for that matter anywhere else in the world.

The typical certified public or chartered accountant today is just one of the many recognized, approved and qualified accounting certifications today. There are numerous others, irrespective of where you are: the Association of Chartered Certified Accountants (ACCA, International) Certification, the Association of Accounting Technicians Certification (AAT, UK), the Certified Management Accountant (CMA) & the Certified Financial Manager (CFM) Certifications issued by the Institute of Management Accountants (IMA, USA), the Chartered Institute of Management Accountants Certification (CIMA, UK & International) which is totally a tier based certification, starting with entry, managerial, strategic and TOPCIMA. If you dig deeper into the US & UK Markets, you’ll see many others, and each of them has their own following. I recently found out that there was an Institute of Financial Accountants (IFA) in the UK, and it’s a pretty major organization. Interestingly enough, I’ve never seen ANY job advertised asking for a certification from the IFA. Questionable? Who in the hell knows.”

Should I be sort of an accountant?

Huolong — Fri, 21 Mar 2008 09:28:44 +0800

My wife says I can’t even easily and comfortably do additions and deductions within a range of 100 and often teases me for making so obvious mistakes in simple elementary school math level calculations - which would be disasters for a certified or chartered accountant candidate.

I was trained to be an accountant, for just one year or two in the mid-1990s, at an accounting school that enrolled graduates from junior or senior secondary schools. I’ve almost forgotten everything accountant I learned there and have a very hard time revisiting the trashbin where my residual accounting knowledge is located, if any.

Just one small question points to my problem

Huolong — Thu, 20 Mar 2008 12:46:54 +0800

The question was whether I should count a discount offered from a supplier for an early cash payment as something against the purchase price of a group of commodity items. The answer is No.

Instead, according to Paper C1, it should be regarded as a financial transaction item, not a trading account item and therefore when calculating the profit for a period the discount is not deducted from the purchase price, making the profit smaller.

My problem is that I even hadn’t had any idea why a discount for buying in bulk was counted against the purchase price, but that for early cash payments were not. Anyway, what is a “trading account item”? And a financial transaction?

Maybe even before C1, I should do some other homework.

Hello CIMA!

Huolong — Sat, 15 Mar 2008 20:42:13 +0800

I want to have a new career orientation with CIMA. Maybe it’s right for me because it’s a multi-faceted qualification.