28 Jun ECONOMIC ORDERING QUANTITY ANALYSIS
Instructions Complete the Mini Case and the problems from your textbook as listed in the following chart
Topic Textbook Problems and Mini Case Questions Cash Management Complete Problem 5 on page 225 of Chapter 7. (15 marks) Accounts Receivable Management Complete Problem 30 on pages 228229 of Chapter 7. (15 marks) Economic Ordering Quantity Analysis Complete Problem 38 on page 230 of Chapter 7. (20 marks) Accounts Receivable and Accounts Payable Analysis Complete the Mini Case entitled “Fresh & Fruity Foods” on pages 257258 in Chapter 8 of the textbook by answering questions (a) to (g) below. (50 marks: 7 marks for each question and 8 for the conclusion) 1. If Fresh & Fruity has been taking 67 days to pay its suppliers, compute the % cost the company is paying for not taking supplier discounts of 2/10, net 60 days. 2. If the company decides to pay off suppliers for all of its purchases within the 10-day discount period, what would be the discount savings after taxes? 3. Using a 365-day year, compute the existing average collection period for collecting accounts receivable. 4. Assume a 10% discount is implemented for customers paying with their order, and the companys average collection period drops to 32 days. If net sales remain the same, how much money would be freed up in reduced accounts receivable? If this money is used to reduce accounts payable, what would be the new balance in accounts payable? 5. If our objective is to reduce accounts payable by shortening the payment period to 10 days, what would be the new accounts payable balance? 6. What would be the after-tax cost of an 8% bank loan needed to pay for the difference in the accounts payable balances in part (d) and part (e)? 7. Does taking the 2% discount offered by suppliers make sense? Hints for Doing Assignment 5 Problem 38 The 10% discount referred to is for the purchase costs only (i.e., $4.75 is reduced by 10%). Also, make sure that you make a concluding statement about the choice to be made, and why. Mini Case If you do this one carefully and show your calculations for each step (so that any early errors that affect later answers can be seen), you will probably do well. You are answering the questions above and using the data in these questions, rather than the data in the problem itself. Remember that accounts receivable balances can be calculated using the average daily sales multiplied by the number of days to collect (average collection period). Also, accounts payable balances can be calculated using the daily purchases multiplied by the number of days to pay (average payment period). If in doubt about how to do part (g), refer to your answers to (b) and (f).
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