Book Notes
E15–1 Sharam Industries has a 120-day operating cycle. If its average age of inventory is
50 days, how long is its average collection period? If its average payment period is
30 days, what is its cash conversion cycle? Place all of this information on a time line similar to Figure 15.2 on page 605. ( The chart is on page 2)
Answer:
E15–2 Icy Treats, Inc., is a seasonal business that sells frozen desserts. At the peak of its summer selling season the firm has $35,000 in cash, $125,000 in inventory, $70,000 in accounts receivable, and $65,000 in accounts payable. During the slow winter period the firm holds $10,000 in cash, $55,000 in inventory, $40,000 in accounts receivable, and $35,000 in accounts payable. Calculate Icy Treats’ minimum and peak funding requirements.
Answer:
E15–3 Mama Leone’s Frozen Pizzas uses 50,000 units of cheese per year. Each unit costs
$2.50. The ordering cost for the cheese is $250 per order, and its carrying cost is
$0.50 per unit per year. Calculate the firm’s economic order quantity (EOQ) for the cheese. Mama Leone’s operates 250 days per year and maintains a minimum inventory level of 2 days’ worth of cheese as a safety stock. If the lead time to receive orders of cheese is 3 days, calculate the reorder point.
Answer:
E15–4 Forrester Fashions has annual credit sales of 250,000 units with an average collection period of 70 days. The company has a per-unit variable cost of $20 and a perunit sale price of $30. Bad debts currently are 5% of sales. The firm estimates that a proposed relaxation of credit standards would not affect its 70-day average collection period but would increase bad debts to 7.5% of sales, which would increase to
300,000 units per year. Forrester requires a 12% return on investments. Show all necessary calculations required to evaluate Forrester’s proposed relaxation of credit standards. proposed relaxation of credit standards would not affect its 70-day average collection period but would
50 days, how long is its average collection period? If its average payment period is
30 days, what is its cash conversion cycle? Place all of this information on a time line similar to Figure 15.2 on page 605. ( The chart is on page 2)
Answer:
E15–2 Icy Treats, Inc., is a seasonal business that sells frozen desserts. At the peak of its summer selling season the firm has $35,000 in cash, $125,000 in inventory, $70,000 in accounts receivable, and $65,000 in accounts payable. During the slow winter period the firm holds $10,000 in cash, $55,000 in inventory, $40,000 in accounts receivable, and $35,000 in accounts payable. Calculate Icy Treats’ minimum and peak funding requirements.
Answer:
E15–3 Mama Leone’s Frozen Pizzas uses 50,000 units of cheese per year. Each unit costs
$2.50. The ordering cost for the cheese is $250 per order, and its carrying cost is
$0.50 per unit per year. Calculate the firm’s economic order quantity (EOQ) for the cheese. Mama Leone’s operates 250 days per year and maintains a minimum inventory level of 2 days’ worth of cheese as a safety stock. If the lead time to receive orders of cheese is 3 days, calculate the reorder point.
Answer:
E15–4 Forrester Fashions has annual credit sales of 250,000 units with an average collection period of 70 days. The company has a per-unit variable cost of $20 and a perunit sale price of $30. Bad debts currently are 5% of sales. The firm estimates that a proposed relaxation of credit standards would not affect its 70-day average collection period but would increase bad debts to 7.5% of sales, which would increase to
300,000 units per year. Forrester requires a 12% return on investments. Show all necessary calculations required to evaluate Forrester’s proposed relaxation of credit standards. proposed relaxation of credit standards would not affect its 70-day average collection period but would