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Chapter 3: 15BP_a (page 222)
Diagnostic Supplies has expected sales of 84,100 units per year, carrying costs of \(5 per unit, and an ordering cost of \)10 per order.
a. What is the economic order quantity?
The economic order quantity is 580 units.
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Henderson Office Supply is considering a more liberal credit policy to increase sales, but expects that 9 percent of the new accounts will be uncollectible. Collection costs are 6 percent of new sales, production and selling costs are 74 percent, and accounts receivable turnover is four times. Assume income taxes of 20 percent and an increase in sales of $65,000. No other asset build-up will be required to service the new accounts.
c. Should Henderson liberalize credit if a 16 percent after-tax return on investment is required?
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.
c. What will the average inventory be?
Route Canal Shipping Company has the following schedule for aging of accounts receivable:
e. What additional information does the aging schedule bring to the company that the average collection period may not show?
Why would a financial manager want to slow down disbursements?
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?
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