A. Genesis Company is a wholesaler. It purchases 60,000 units of Product X per month for sale to retailers. The cost of placing an order is P100. The cost of holding one unit of inventory for one year is P4. Required: 1. Compute the economic order quantity. 2. How many orders would be placed under the EOQ policy? 3. Compute the annual ordering cost for the EOQ.
A. Genesis Company is a wholesaler. It purchases 60,000 units of Product X per month for sale to retailers. The cost of placing an order is P100. The cost of holding one unit of inventory for one year is P4. Required: 1. Compute the economic order quantity. 2. How many orders would be placed under the EOQ policy? 3. Compute the annual ordering cost for the EOQ.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:A. Genesis Company is a wholesaler. It purchases 60,000 units of Product X per month
for sale to retailers. The cost of placing an order is P100. The cost of holding one unit
of inventory for one year is P4.
Required:
1. Compute the economic order quantity.
2. How many orders would be placed under the EOQ policy?
3. Compute the annual ordering cost for the EOQ.
4. Compute the annual carrying cost for the EOQ.
5. Compute the total inventory-related cost at the EOQ.
6. Previously, the company had been purchasing 5,000 units of product X per
order:
What is the ordering cost per year under the previous policy?
ii. The annual carrying cost?
iii. How much money does the company save over the policy of
purchasing 5,000 units per order using the EOQ policy?
i.
B. Kings Company presents the following information:
1. Annual credit sales: P 25,200,000
2. Collection period: 3 months
3. Rate of return: 12%
Kings company considers changing its credit term from n/30 to 3/10, 1/30. The
following are expected to result: (1) 30% of its customers will take advantage of the
discount; (2) sales will remain constant; and (3) the collection period is expected to
decrease to two months
Should the company implement the proposed discount policy? Why?
C. Exodus Corp. is analyzing the performance of its cash management. On the average,
the firm holds inventory 65 days, pays its suppliers in 35 days, and collects its
receivables in 15 days. The firm has a current annual outlay of P1,960,000 on operating
cycle investments. Exodus currently pays 10 percent for its negotiated financing.
(Assume a 360-day year.)
Calculate the following:
a. Cash conversion cycle
b. Operating cycle.
c. Daily expenditure and the firm's annual savings if the operating cycle is reduced
by 15 days.
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