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Chapter 3: 14BP_a (page 222)
In the second year, Fisk Corporation finds that it can reduce ordering costs to \(2 per order but that carrying costs stay the same at \)1.60 per unit. Also, volume remains at 49,000 units per year.
a. What is the economic ordering quantity?
The economic order quantity is 350 units.
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Under what circumstances would it be advisable to borrow money to take a cash discount?
Sharpe Knife Company expects sales next year to be \(1,550,000 if the economy is strong, \)825,000 if the economy is steady, and $550,000 if the economy is weak. Mr. Sharpe believes there is a 30 percent probability the economy will be strong, a 40 percent probability of a steady economy, and a 30 percent probability of a weak economy. What is the expected level of sales for the next year?
What are the 5 Cs of credit that are sometimes used by bankers and others to determine whether a potential loan will be repaid?
In the management of cash and marketable securities, why should the primary concern be for safety and liquidity rather than maximization of profit?
City Farm Insurance has collection centers across the country to speed up collections. The company also makes its disbursements from remote disbursement centers so the firm’s checks will take longer to clear the bank. Collection time has been reduced by two days and disbursement time increased by one day because of these policies. Excess funds are being invested in short-term instruments yielding 12 percent per annum.
a. If City Farm has \(5 million per day in collections and \)3 million per day in disbursements, how many dollars has the cash management system freed up?
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