Reference no: EM132555969

Study the information below and answer the questions that follow:

Normal usage or average requirement                 800 units per day

Maximum usage                                                1 000 units per day

Minimum usage                                                     600 units per day

Re-order period                                                One month (30 days)

Time required to receive emergency supplies                       5 days

Question a: Calculate the following:

1 Ordering point

2 Minimum limit/level

3 Danger level

4 Super Smart Clothes Ltd has annual, non-seasonal credit sales of R3 200 000. Customers are expected to pay within 30 days, but in fact have been settling in an average of 42 days. Super Smart Clothes experiences a bad-debt rate of 0.8% of debtors annually. The company's current overdraft facility is 2.5% above base-rate, which is at present 12%. Unfortunately, the overdraft limit has nearly been reached, and is unlikely to be extended. Super Smart Clothes Ltd has contacted We Help You Ltd, a factoring firm, and has been quoted:

• A factor charge of 1.8% of credit sales (Super Smart Clothes Limited estimates that this would save R25 000 administration costs per year)
• An advance of 75% of invoices at 3% over base-rate.

Required:

4.1 Should the factoring firm, We Help You Limited, terms be agreed to?