BBUS 3121 ASSINGMENT 5
30)First Picked Fruits, Inc.
a. Policy #1 Policy #2
Δ Sales Present policy $6,100,000 Policy one 6,900,000 $ 800,000 Policy two $7,200,000 $1,100,000
Δ Contribution margin (1 – .94) = 6% $48,000 $66,000
Δ Bad debt expense (on incremental sales only) Policy one 1.75% ($800,000) (14,000) New policy 2.0% ($1,100,000) (22,000)
Δ Investment in accounts receivable (incremental sales only) Policy one $800,000 × 50/365 = $109,589 Policy two $1,100,000 x 65/365 = $195,890
Δ Opportunity benefit on investment in accounts receivable at 16% Policy one: $109,589 × 16% = (17,534) Policy two: $195,840 × 16% = (31,342)
Total incremental change $ 16,466 $ 12,658
Both policies are viable. Policy one is the best choice if a choice must be made.
b. The analysis presented assumes a perpetuity for the cash flow changes. It ignores any impacts on machinery usage and accelerated wear and tear due to increased sales. This would bring forward in time capital investments. The analysis may also ignore competitive responses.
c. No.
38) Minty Airfresheners Ltd.
The current situation:
81,600 packages per year /3,400 EOQ = 24 orders per year
Average inventory at EOQ= 3,400/2 = 1,700
Annual cost at EOQ = (24 orders x $106.25) + (1,700 average inventory × $1.50) + (81,600 packages × $4.75) = $2,550 + $2,550 + $387,600 = $392,700
The proposed quarterly ordering:
Each order = 81,600/ 4 = 20,400 Average inventory = 20,400/ 2 = 10,200
Annual cost (with discount) = (4 orders × $106.25) + (10,200 average inventory × $1.50) + (81,600 packages x $4.75 × 90%) = $425 + $15,300 + $348,840 = $364,565
Yes it shuld change the present ordering policy. Cause than it better by $28,135 ($392,700 – $364,565)
5) Low Ash Cat Foods
$225,000 daily receipts × 4 days speed up = $900,000
Opportunity cost of funds at 6%
Annual benefit 54,000
Annual new bank fee 49,000
Annual savings from new bank collection system
a. Policy #1 Policy #2
Δ Sales Present policy $6,100,000 Policy one 6,900,000 $ 800,000 Policy two $7,200,000 $1,100,000
Δ Contribution margin (1 – .94) = 6% $48,000 $66,000
Δ Bad debt expense (on incremental sales only) Policy one 1.75% ($800,000) (14,000) New policy 2.0% ($1,100,000) (22,000)
Δ Investment in accounts receivable (incremental sales only) Policy one $800,000 × 50/365 = $109,589 Policy two $1,100,000 x 65/365 = $195,890
Δ Opportunity benefit on investment in accounts receivable at 16% Policy one: $109,589 × 16% = (17,534) Policy two: $195,840 × 16% = (31,342)
Total incremental change $ 16,466 $ 12,658
Both policies are viable. Policy one is the best choice if a choice must be made.
b. The analysis presented assumes a perpetuity for the cash flow changes. It ignores any impacts on machinery usage and accelerated wear and tear due to increased sales. This would bring forward in time capital investments. The analysis may also ignore competitive responses.
c. No.
38) Minty Airfresheners Ltd.
The current situation:
81,600 packages per year /3,400 EOQ = 24 orders per year
Average inventory at EOQ= 3,400/2 = 1,700
Annual cost at EOQ = (24 orders x $106.25) + (1,700 average inventory × $1.50) + (81,600 packages × $4.75) = $2,550 + $2,550 + $387,600 = $392,700
The proposed quarterly ordering:
Each order = 81,600/ 4 = 20,400 Average inventory = 20,400/ 2 = 10,200
Annual cost (with discount) = (4 orders × $106.25) + (10,200 average inventory × $1.50) + (81,600 packages x $4.75 × 90%) = $425 + $15,300 + $348,840 = $364,565
Yes it shuld change the present ordering policy. Cause than it better by $28,135 ($392,700 – $364,565)
5) Low Ash Cat Foods
$225,000 daily receipts × 4 days speed up = $900,000
Opportunity cost of funds at 6%
Annual benefit 54,000
Annual new bank fee 49,000
Annual savings from new bank collection system