Which type of cost is GAP targeting?

GAP Ltd is a growing retail business. It spends a lot of money on buying stock for sale. However, the procurement process is still largely manual. This manual process contains a lot of tasks that are repeated for each procurement event and time consuming. The company management team decides to adopt procure-to-pay (P2P) software in order to eliminate duplicate activities and improve process efficiencies.

Which type of cost is GAP targeting?
A . Holding costs
B . Acquisition costs
C . Disposal costs
D . Cost of stockouts

View Answer

Answer: B

Explanation:

Costs of holding inventory include the following:

• Acquisition cost

• Inventory holding cost

• Costs of stock-outs

Acquisition costs follow the typical procure-to-pay model. Benefits of procure-to-Pay (P2P) software include:

– Vendor Management, which includes researching, selecting, engaging with, and evaluating the performance of suppliers who make up your supply chain.

– Purchase Requisition Workflows, or the formal process of creating and submitting a purchase requisition (PR) for approval to meet a specific business need.

– Purchase Order (PO) Workflows, covering the creation of a formal, detailed PO from the purchase requisition, including information on the quantity and quality of goods and services, as well as specific terms and conditions.

– Receiving, which includes the acceptance of physical goods (or review of quality and completion for services) and entering the accepted order into inventory, tracking, and accounting systems.

– Invoice Management, during which the invoice is compared to the original PO to verify pricing, quality, quantity, and terms have been met.

– Accounts Payable Workflows, wherein the accounts payable department processes the invoice for payment, submits the payment to the vendor, and reconciles any related financial entries in the accounting system.

The software is intended to help reduce the acquisition costs. LO 2, AC 2.2