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CASH Math

1) Clearwater Glass has a disbursement float of 5 days and collection float of 4 days, resulting in a net float of 1 day. 2) If Clearwater reduces collection float by 2 days, and has a 10% opportunity cost, it would be willing to spend $8,000 per year to make the change. 3) For Morrissey Industries, days sales outstanding is 33 days, average receivables are $270,000, and toughening collection policies to require payment on the 30th day would reduce average receivables by $30,000.

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26 views

CASH Math

1) Clearwater Glass has a disbursement float of 5 days and collection float of 4 days, resulting in a net float of 1 day. 2) If Clearwater reduces collection float by 2 days, and has a 10% opportunity cost, it would be willing to spend $8,000 per year to make the change. 3) For Morrissey Industries, days sales outstanding is 33 days, average receivables are $270,000, and toughening collection policies to require payment on the 30th day would reduce average receivables by $30,000.

Uploaded by

Nuzat Nawar Tofa
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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CASH

14-8: The following inventory data have been established for the
Thompson Company:
(1) Orders must be placed in multiples of 100 units.
(2) Annual sales are 338,000 units.
(3) The purchase price per unit is $6.
(4) Carrying cost is 20 percent of the purchase price of goods.
(5) Fixed order cost is $48.
(6) Three days are required for delivery.
a. What is the EOQ?
b. How many order should Thompson place each year?
c. At what inventory level should an order be made?
d. Calculate the total cost of ordering and carrying inventories if the
order quantity is 1) 4,000 units 2) 4,800 units or 3) 6,000 units 4) What
are the total costs if the order quantity is the EOQ?

Exam Type Problems


The problems included in this section are set up in such a way that they
could be used as multiple-choice exam problems.

14-9:Clearwater Glass Company has examined its cash management


policy, and it has found that it takes an average of five days for checks
the company writes to reach its bank and thus be deducted from its
checking account balance (i.e. disbursement delay, or float, is five days).
On the other hand, it is an average of four days from the time Clearwater
Glass receives payments from its customers until the funds are available
for use at the bank (i.e. collection delay, or float, is four days). On an
average day, Clearwater Glass writes checks that total $70,000 and it
receives checks from customers that total $80,000.
a. Compute the disbursement float, collection float and net float in
dollars.

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b. If Clearwater Glass has an opportunity cost equal to ten percent, how
much would it be willing to spend each year to reduce collection delay
(float) by two days? (Hint: Assume any funds that are freed up are
invested at ten percent annually)

14-10: Morrissey Industries sells on terms of 3/10, net 30. Total sales for
the year are $900,000. Forty percent of the customers pay on the tenth
day and take discounts; the other 60 percent pay, on average, 40 days
after their purchases.
a. What is the days sales outstanding?
b. What is the average amount of receivables?
c. What would happen to average receivables if Morrissey toughened up
on its collection policy with the result that all non discount customers
paid on the 30th day?

Math:
Navana Auto Repair company is attempting to evaluate whether it
should ease collection efforts. The firm repairs 5000 cars per year at an
average price of $100 each. Bad debt expenses are 2 percent of sales,
and collection expenditures are $200,000. The average collection period
is 35 days, and variable cost per unit is $60. By easing the collection
efforts, Navana expects to save $90,000 per year in collection expenses.
Bad debts will increase to 4% of sales. And the average collection period
will increase to 45 days , Sales will increase by 2500 repairs per year. If
the firm has a required rate of return on equal- risk investments of 15% ,
what recommendation would you give the firm? Use your analysis to
justify your answer.

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