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management Inventory Unit price Component X $25 Trade payables $'000 Bard Co 1,000 Colix Co 3,200 Amax Co has received an offer of a discount for bulk purchase from Bard Co, one of its major suppliers. Bard Co has offered a 0.5% discount on orders of 60,000 units or more of Component X. Amax Co currently consumes 240,000 units of Component X each year and places orders of 20,000 units at the end of each month. Holding cost for Component X is $1 per unit per year and ordering costs are $250 per order. Amax Co does not maintain any buffer inventory of Component X. Colix Co, a major supplier of Component M to Amax Co, has offered a 1% early settlement discount for payment within 30 days. Amax Co currently takes 72 days to settle outstanding invoices with Colix Co. Amax Co has a cost of short-term finance of 6% through an overdraft and no surplus cash. Assume that there are 360 days in each year. Amax Co currently has decentralised treasury operations, but is considering implementing a centralised treasury department. 24. Using months as a basis, what is the financial consequence of accepting the bulk purchase discount? A Benefit of $8,000 per year B Benefit of $12,000 per year C Cost of $13,000 per year D Cost of $8,000 per year 13

management Inventory Unit price Component X $25 Trade payables $'000 Bard Co 1,000 Colix Co 3,200 Amax Co has received an offer of a discount for bulk purchase from Bard Co, one of its major suppliers. Bard Co has offered a 0.5% discount on orders of 60,000 units or more of Component X. Amax Co currently consumes 240,000 units of Component X each year and places orders of 20,000 units at the end of each month. Holding cost for Component X is $1 per unit per year and ordering costs are $250 per order. Amax Co does not maintain any buffer inventory of Component X. Colix Co, a major supplier of Component M to Amax Co, has offered a 1% early settlement discount for payment within 30 days. Amax Co currently takes 72 days to settle outstanding invoices with Colix Co. Amax Co has a cost of short-term finance of 6% through an overdraft and no surplus cash. Assume that there are 360 days in each year. Amax Co currently has decentralised treasury operations, but is considering implementing a centralised treasury department. 24. Using months as a basis, what is the financial consequence of accepting the bulk purchase discount? A Benefit of $8,000 per year B Benefit of $12,000 per year C Cost of $13,000 per year D Cost of $8,000 per year 13

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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management Inventory Unit price Component X $25 Trade payables $'000 Bard Co 1,000 Colix Co 3,200 Amax Co has received an offer of a discount for bulk purchase from Bard Co, one of its major suppliers. Bard Co has offered a 0.5% discount on orders of 60,000 units or more of Component X. Amax Co currently consumes 240,000 units of Component X each year and places orders of 20,000 units at the end of each month. Holding cost for Component X is $1 per unit per year and ordering costs are $250 per order. Amax Co does not maintain any buffer inventory of Component X. Colix Co, a major supplier of Component M to Amax Co, has offered a 1% early settlement discount for payment within 30 days. Amax Co currently takes 72 days to settle outstanding invoices with Colix Co. Amax Co has a cost of short-term finance of 6% through an overdraft and no surplus cash. Assume that there are 360 days in each year. Amax Co currently has decentralised treasury operations, but is considering implementing a centralised treasury department. 24. Using months as a basis, what is the financial consequence of accepting the bulk purchase discount? A Benefit of $8,000 per year B Benefit of $12,000 per year C Cost of $13,000 per year D Cost of $8,000 per year 13
Transcribed Image Text:management Inventory Unit price Component X $25 Trade payables $'000 Bard Co 1,000 Colix Co 3,200 Amax Co has received an offer of a discount for bulk purchase from Bard Co, one of its major suppliers. Bard Co has offered a 0.5% discount on orders of 60,000 units or more of Component X. Amax Co currently consumes 240,000 units of Component X each year and places orders of 20,000 units at the end of each month. Holding cost for Component X is $1 per unit per year and ordering costs are $250 per order. Amax Co does not maintain any buffer inventory of Component X. Colix Co, a major supplier of Component M to Amax Co, has offered a 1% early settlement discount for payment within 30 days. Amax Co currently takes 72 days to settle outstanding invoices with Colix Co. Amax Co has a cost of short-term finance of 6% through an overdraft and no surplus cash. Assume that there are 360 days in each year. Amax Co currently has decentralised treasury operations, but is considering implementing a centralised treasury department. 24. Using months as a basis, what is the financial consequence of accepting the bulk purchase discount? A Benefit of $8,000 per year B Benefit of $12,000 per year C Cost of $13,000 per year D Cost of $8,000 per year 13
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