What is the incremental cost of the bad debts

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Reference no: EM133501168

Assignment:

1. ?Wheeling Manufacturing orders 8,000 units of graphite shafts for its production of golf clubs per week. The carrying costs of these shafts are $5 per unit per year and the fixed ordering cost is $300. What are the annual holding costs and annual ordering costs? Is ordering once a week too often or not often enough? How do you tell?

2.? Fancy-Bike Manufacturing needs 100,000 units of bicycle tires for its production of beach bikes per year. The carrying costs of these tires are $10 per unit per year and the fixed ordering cost is $400. What is the optimal number of units Fancy-Bike should order each time in order to minimize total inventory cost? At this optimal quantity, how often should Fancy-Bike order its bicycle tires? Assume a 365-day year.

3.? As treasurer of the Dragon Corporation, Henry Lee is worried about his bad debt ratio, which is currently running at 7%. The company currently has $40 million in sales. He believes that imposing a more stringent credit policy might reduce sales by 10% and reduce the bad debt ratio to 3%. If the cost of goods sold is 70% of the selling price, should Mr. Lee adopt the more stringent policy?

4.? Solarius Trading Company is considering lengthening its credit period from 30 to 50 days. All customers will continue to pay on the net date. The firm currently has $300,000 of sales per year, but believes that as a result of the proposed change, sales will increase to $360,000. Bad debt expense will increase from 3% to 5% of sales. The variable cost is 70% of sales. The firm has a cost of capital of 12%. Assume a 360-day year.

a. What is the incremental cost of investment in accounts receivable?

b. What is the incremental cost of the bad debts?

c. Should Solarius lengthen its credit period from 30-50 days?

5. ?Your supplier has offered you a 2/10 net 45 credit term for your recent purchase. If you take the discount offered, you will pay on day 10, otherwise you will pay on day 45. What is the annual cost of giving up this cash discount? Assume a 360-day year.

Reference no: EM133501168

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