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