Enhancement of Pharmacy Inventory Control System Thesis: Definition of Terms

Definition of Terms

Cost-flow assumption – is the beginning point used to determine the value of the ending inventory and the cost assigned to the cost of goods sold (Eisen, 2007).

Economic Order Quantity (EOQ) – it is the optimum amount of goods to be ordered each time the inventory level drops at the pre-determined reorder point.

First-In, First-Out (FIFO) Method – it is a cost-flow assumption generally use by business entities in assigning cost to their inventories. This method assumes that the first units brought are the first units sold.

Internal control – it is a system of procedures and forms established in a business to safeguard its assets and help ensure the accuracy of the information provided by its accounting system.

Inventory – it is an asset acquired and maintained by an entity which are held for sale or as supplies in the business operations.

Inventory control system – it is a set of policies and controls that monitors level of inventory and determines what levels should be maintained, when stock should be replenished, and how large orders should be.

Lead time – it is the period between placing an order and receiving delivery used in the computation for economic order quantity (EOQ).

Last-In, Last-Out (LIFO) Method – this method assumes that the most recent cost of goods acquired should be charged at the most recent sales made

Periodic system – it is an inventory tracking system that determines inventory levels only at fixed points in time through the use of physical inventory counts (Bragg, 2004).

Perpetual system – it is an inventory tracking system that determines inventory levels on an ongoing basis by making incremental adjustments to inventory records based on individual production transactions (Bragg, 2004).

Safety stock – it is the buffers or reserve stock kept on hand to protect against stock outs caused by delayed deliveries or increased demand.

Reorder Point (ROP) – it is the designated inventory level at which it is appropriate to replenish stock (Siegel, Shim, and Hartman, 1997). It is set such that the inventory level will reach zero at about the time the replenishment is expected to arrive.

Weighted average method – it is a cost-flow assumption that yields a cost that is representative of the cost of the product over the entire accounting period. The average cost is weighted by the number of units purchased at each cost (Carroll, 2006).