EXERCISE TOPIC : WORKING CAPITAL MANAGEMENT

Question 1 Cempaka Bhd uses 80,000 gallons of varnish per year. The cost of ordering the varnish is RM400 per order. The cost of holding the varnish in inventory is RM2 per gallon per year. The company uses the varnish at a constant rate throughout the year. Required: a. Calculate the economic order quantity (EOQ). b. Assuming that it takes 25 days to receive an order once it has been placed, determine the reorder point in gallons of varnish. Question 2 Mokhtar Electronics purchases 2,400,00 units per year of one part. The fixed cost RM30 per order. The annual holding cost of the item is 29% of its RM4 cost. Required: a. Determine the economic order quantity. b. What is weakness of the economic order quantity? Question 3 The annual total sales of the Lee Enterprise for 2010 is rm2.5 million. Of this amount, total cash sales represent 25% and credit sales 75%. Accounts receivable is RM200,000. Required: a. Calculate the companys accounts receivable turnover. b. Calculate the average collection period Question 4 Mung Seng Appliances currently has credit sales of RM400 million per year and an average collection period of 50 days. The selling price of the companys product is RM65 per unit and its variable cost is RM60 per unit. The firm is considering a change in its accounts receivable policy that will result in a 25% increase in sales and a 15% increase in the average collection period. No change in bad debts is expected. The firms opportunity cost on its investment in a accounts receivable is 12% . Required: a. Calculate the additional profit from new sales that the firm will realize if it makes the proposed change. b. What is the additional investment in accounts receivable that will result and its cost?