Ch 22 Mini Case

Topics: Costs, Variable cost, Cost Pages: 4 (884 words) Published: December 10, 2012
| Jen Poe| | | | | |
| BUS657 Corporate Managerial Finance| | | | |
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| Week #5| | | | | |
| Assignment - Chapter 22 Mini - Case | | | | |
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1)      Calculate BB's current cash conversion cycle.| | | | | | | | | | | |
| BB's Ratios:| | | | | |
| Average Age of Inventory| $842,020 / [(0.57 *$43,803,000) /365] | | 12.31| days| | Average Collection Period| $3,240,222/($43,803,000/365)| | 27.00| days| | Average payment Period| $1,826,070/[(0.57*$43,803,000)/365]| | 26.695| days| | | | | | | |

| BB's Cash Conversion Cycle =| AAI + ACP - APP| | | | | | BB's Cash Conversion Cycle =| 12.31 + 27 - 26.695| | | | | | BB's Cash Conversion Cycle =| 12.615| days| | | |
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2)      BB currently uses 3,000 ingots of aluminum each year to manufacure bracelet blanks. The order cost (including shipping) is $5,000 per order, and carrying costs are $75 per unit per year. Determine the economic order quantity, the amount of safety stock, and the reorder point for aluminum ingots assuming there is a 1-week lead time and the firm would like a safety stock of 3%.| | | | | | | | |

| Economic Order Quantity = | √2 x current use x order cost / carry cost per unit per year = | | | | | √2 x 3,000 x 5,000 / 75 = | 632.46| per order| | | | | | | | |
| Ingots of aluminum per day = | 3000/365 =| 8.22 | ingots| | | | Reorder point = | 8.22*7 =| 57.40| ingots| 147.40| | | 3% safety stock = | 0.03*3000 = | 90| ingots| | |

| BB should reorder when they have 147.40 ingots remaining in stock in order to maintain their safety stock requirements. | | | | | | | | |
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3)      In an attempt to boost sales, BB is considering relaxing its credit standards by extending more...
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