Reference no: EM132768397
Problem 1 - Change in credit policy
An aggressive credit manager has taken over Mystic Pop Corporation. Currently sales are about P21,600,000 a year. The credit manager believes that by establishing credit terms of 2/20, net 30, he can reduce the collection period from 60 days to 20 days, on average. The credit manager expects that 80% the total credit customers will take advantage of the discount and that all the funds received from the receivables can be invested at 15 percent.
Moreover, the company expects to reduce its collection costs by P90,000 a year in this new credit policy.
Required: Using a 360-day year, determine the following (show your solution):
1. Receivables turnover before and after the change in the credit policy.
2. Average receivable balances before and after the change in policy.
3. Net advantage or disadvantage of the new credit policy.
Problem 2 - Change in collection policy
The Sandbox Company is planning to increase its level of collection expenditures form the current P250,000 to P400,000, on credit sales of P24,000,000. This move is expected to accelerate payments and increase turnover of receivables from 8 to 12 times and cut bad debts from two percent to one percent of credit sales. The opportunity cost of funds is 12 percent. The company uses a 360-day year in planning and controlling.
Required: Calculate the following (show your solution):
1. Receivables turnover before and after the change in the collection policy.
2. Average receivable balance before and after the change in collection policy.
3. Net advantage or disadvantage of the new collection policy.
Problem 3 - Economic Order Quantity
Sky Castle has been buying product Alhambra in lots of 1,200 units which represents a four month's supply. The cost per unit is P220. The order cost is P200 per order; and the annual inventory carrying cost per one unit is P25. Assume that the units will be required evenly throughout the year.
Required: Calculate the following (show your solution):
1. Economic Order Quantity
2. Number of orders in a year
3. Average inventory based on economic order quantity
4. Total carrying costs, ordering costs, and relevant inventory costs at economic order quantity
Problem 4 - Reorder point, lead time quantity, safety stock quantity
The following information is available for Imooji Company's Material BSA-2020:
Annual usage 10,000 units
Working days per year 250 days
Normal lead time in working days 30 days
Maximum lead time in working days 70 days
Required: Compute the following (show your solution):
1. Lead time quantity
2. Safety stock quantity
3. Reorder point