Determine the eoq before and after the change in the cash

Reference no: EM13615982

Fancy Distributing Company of Atlanta sells fans and heaters to retail outlets throughout the Southeast. Joe Fancy, the president of the company, is thinking about changing the firm's credit policy to attract customers away from competitors. The present policy calls for 3/15, net 30 cash discount. The new policy would call for a 5/10, net 45 cash discount. Currently, 45 percent of Fancy customers are taking the discount, and it is anticipated that this number would go up to 65 percent with the new discount policy. It is further anticipated that annual sales would increase from a level of $150,000 to $575,000 as a result of the change in the cash discount policy.

The increased sales would also affect the inventory level. The average inventory carried by Logan is based on a determination of an EOQ. Assume sales of fans and heaters increase from 10,500 to 22,750 units. The ordering cost for each order is $175, and the carrying cost per unit is $2.50 (these values will not change with the discount). The average inventory is based on EOQ/2. Each inventory has an average cost of $12.50.

Cost of goods sold is equal to 60 percent of net sales; general and administrative expenses are 15 percent of net sales; and interest payments of 14 percent will only be necessary for the increase in the accounts receivable and inventory balances. Taxes will be 34 percent of before-tax income.

a. Compute the accounts receivable balance before and after the change in the cash discount policy. Use the net sales (total sales minus cash discounts) to determine the average daily sales.

b. Determine the EOQ before and after the change in the cash discount policy. Translate this into average inventory (in units and dollars) before and after the change in the cash discount policy.

c. Compute the following income statement.

d. Should the new cash discount policy be utilized? Briefly comment.

Reference no: EM13615982

Questions Cloud

What is the net flow rate of energy in watts from the : consider a solid sphere of radius 4 cm at a temperature of 19 degrees celsius. suppose the sphere is completely

Rhianna corp has bonds on the market with 215 years to : rhianna corp. has bonds on the market with 21.5 years to maturity a yield to maturity of 6.80 percent and a current

A how much charge is on each plate of a 400 microf : a how much charge is on each plate of a 4.00 microf capacitor when it is connected to a 9.00 v battery?b if this same

Test to see if the variances are the same give the null and : below are two groupsa 15 22 19 25 16b 32 25 27 33 21 35 30a test to see if the variances are the same give the null and

Determine the eoq before and after the change in the cash : fancy distributing company of atlanta sells fans and heaters to retail outlets throughout the southeast. joe fancy the

A 307 cm long solenoid 130 cm in diameter is to produce a : a 30.7 cm long solenoid 1.30 cm in diameter is to produce a field of 0.365 t at its center. how much current should the

At the start of july classic car wax company had beginning : at the start of july classic car wax company had beginning work in process of 2500 units that were 90 completed with

New hope also has 200000 in surplus funds that it is : new hope managed care inc. is a for-profit managed care company that serves the southwest unitednbsp states. last

Alpha particles of charge q 2e and mass m 66 10-27 kg are : alpha particles of charge q 2e and mass m 6.6 10-27 kg are emitted from a radioactive source at a speed of 1.5 107

User Account

All Pages