what is the difference between leasing & sale and lease back. (1 Viewer)

[melanieeeee.]

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[veloc1ty]

You can lease things for many different reasons. However, a sale and lease back tactic (where you sell an asset and then lease it back off the purchaser or another supplier of the asset) is done to increase working capital.

Before sale and lease back: you owned an asset, and had x cash.
After sale and lease back: you are leasing the asset instead of having ownership, and have x cash + the cash you got from selling the asset.

 

[melanieeeee.]

thanks.

also it says in the maquarie study guide that a way to reduce expense includes: "using just-in-time technology to reduce inventory costs". what does this mean. what is the relation between the two. how does just-in-time technology reduce inventory cost.

 

[ameher]

thanks.

also it says in the maquarie study guide that a way to reduce expense includes: "using just-in-time technology to reduce inventory costs". what does this mean. what is the relation between the two. how does just-in-time technology reduce inventory cost.

essentially just in time technology allows for inventory to arrive at the business, just in time for it to be used. Thus utilising such a strategy eliminates the holding costs for inventory, as goods arrive at the business just when they are to be used.

 

[veloc1ty]

A just-in-time inventory strategy is basically what it sounds like: you recieve the stock just as you need it. This requires very good communication between the business and its suppliers, as well as high monitoring of current stock so you can accurately estimate when you will need more.

It is risky in some respects because you will need to depend on suppliers (so it's best to have backup suppliers ready in case there is an unforeseen delay). Accuracy of estimating when you will need more stock also depends on product - for example, a staple good like milk will have rather constant demand, whereas more expensive goods can have fluctuating demand.

The way it reduces inventory cost is mainly because you will cut down massively on warehousing and storage costs.

 

[melanieeeee.]

thanks.

also it says in that another way to reduce expense includes: "substituting fixed costs such as improved machinary, for labour." wouldnt that increase cost.

edit: dw i got it.

 

[veloc1ty]

Depends on the situation of the business. Remember machinery requires large start-up investment, so it's best used on large product runs to reduce fixed cost-per-unit. However for shorter product runs labour might be cheaper because you're only paying wages.

What page is this on? That one does sound a bit odd...

 

[melanieeeee.]

p63.

 

[veloc1ty]

Yeah, might as well ignore it... the other four points would easily suffice for an expense minimisation question.