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CASH Math
CASH Math
CASH Math
14-8: The following inventory data have been established for the
Thompson Company:
(1) Orders must be placed in multiples of 100 units.
(2) Annual sales are 338,000 units.
(3) The purchase price per unit is $6.
(4) Carrying cost is 20 percent of the purchase price of goods.
(5) Fixed order cost is $48.
(6) Three days are required for delivery.
a. What is the EOQ?
b. How many order should Thompson place each year?
c. At what inventory level should an order be made?
d. Calculate the total cost of ordering and carrying inventories if the
order quantity is 1) 4,000 units 2) 4,800 units or 3) 6,000 units 4) What
are the total costs if the order quantity is the EOQ?
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b. If Clearwater Glass has an opportunity cost equal to ten percent, how
much would it be willing to spend each year to reduce collection delay
(float) by two days? (Hint: Assume any funds that are freed up are
invested at ten percent annually)
14-10: Morrissey Industries sells on terms of 3/10, net 30. Total sales for
the year are $900,000. Forty percent of the customers pay on the tenth
day and take discounts; the other 60 percent pay, on average, 40 days
after their purchases.
a. What is the days sales outstanding?
b. What is the average amount of receivables?
c. What would happen to average receivables if Morrissey toughened up
on its collection policy with the result that all non discount customers
paid on the 30th day?
Math:
Navana Auto Repair company is attempting to evaluate whether it
should ease collection efforts. The firm repairs 5000 cars per year at an
average price of $100 each. Bad debt expenses are 2 percent of sales,
and collection expenditures are $200,000. The average collection period
is 35 days, and variable cost per unit is $60. By easing the collection
efforts, Navana expects to save $90,000 per year in collection expenses.
Bad debts will increase to 4% of sales. And the average collection period
will increase to 45 days , Sales will increase by 2500 repairs per year. If
the firm has a required rate of return on equal- risk investments of 15% ,
what recommendation would you give the firm? Use your analysis to
justify your answer.
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