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Cash

The document presents various financial scenarios and calculations related to inventory management, cash management, accounts receivable, and credit policies for different companies. It includes questions on economic order quantity, annual usage estimation, cash balance models, disbursement and net float, and the impact of credit policy changes on accounts receivable. Each scenario requires specific financial formulas and considerations to determine the outcomes for the respective companies.

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17 views

Cash

The document presents various financial scenarios and calculations related to inventory management, cash management, accounts receivable, and credit policies for different companies. It includes questions on economic order quantity, annual usage estimation, cash balance models, disbursement and net float, and the impact of credit policy changes on accounts receivable. Each scenario requires specific financial formulas and considerations to determine the outcomes for the respective companies.

Uploaded by

hnnhjssamy2828
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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1.

What is the economic order quantity for the following inventory policy: A firm sells
32,000 bags of premium sugar per year. The cost per order is P200 and the firm experiences
a carrying cost of P0.80 per bag.

2. Marsman Co. has determined the following for a given year:

Economic order quantity (standard order size) 5,000 units

Total cost to place purchase orders for the year P40,000

Cost to place one purchase order P 100

What is Marsman’s estimated annual usage in units

3. Suppose that the interest rate on Treasury bills is 6%, and every sale of bills costs $20.
You pay out cash at a rate of $400,000 a month. According to Baumol's model of cash
balances, how many times a month should you sell bills?

4. On an average day, a company writes checks totaling $1,500. These checks take 7 days
to clear. The company receives checks totaling $1,800, and these checks take 4 days to
clear. The cost of debit is 9%. What is the firm’s disbursement float?

5. On an average day, a company writes checks totaling $1,500. These checks take 7 days
to clear. The company receives checks totaling $1,800, and these checks take 4 days to
clear. The cost of debit is 9%. What is the firm’s net float?
6. Prest Corporation plans to tighten its credit policy. Below is the summary of changes

OLD NEW

Average number of days collection 75 50

Ratio of credit to total sales 70% 60%

Projected sales for the coming year are P100 million and its was estimated that the new
policy will be a 5% less if the new policy is implemented. Assuming a 360-day year, what is
the effect of the new policy on accounts receivable?

7. Slippers Mart has sales of P3 million. Its credit period and average collection period are
both 30 days and 1% of its sales end as bad debts. The general manager intends to extend
the credit period to 45 days which will increase sales by P300,000. However, bad debts
losses on the incremental sales would be 3%. Costs of products and related expenses
amount to 40% exclusive of the cost of carrying receivables of 15% and bad debts
expenses. Assuming 360 days a year, the change in policy would result to incremental
investment in receivables of?

8. Palm Company’s budgeted sales for the coming year are P40,500,000 of which
80% are expected to be credit sales at terms of n/30. Palm estimates that a
proposed relaxation of credit standards will increase credit sales by 20% and
increase the average collection period from 30 days to 40 days. Based on a 360-day year,
the proposed relaxation of credit to standards will result in an expected increase in the
average accounts receivable?
9. Caja Company sells on terms 3/10, net 30. Total sales for the year are P900,000. Forty
percent of the customers pay on the tenth day and take discounts; the other 60 percent
pay, on average, 45 days after their purchases. What is the average amount of receivables?

10. The Camp Company has an inventory conversion period of 60 days, a


receivable conversion period of 30 days, and a payable payment period of 45 days. The
Camp’s variable cost ratio is 60 percent and annual fixed costs of P600,000. The current
cost of capital for Camp is 12%. If Camp’s annual sales are P3,375,000 and all sales are on
credit, what is the firm’s carrying cost on accounts receivable, using 360 days year?

11. Currently, La Carlota Company has annual sales of P2,500,000. Its average collection
period is 45 days, and bad debts are 3 percent of sales. The credit and collection
manager is considering instituting a stricter collection policy, whereby bad debts would
be reduced to 1.5 percent of total sales, and the average collection period would fall to 30
days. However, sales would also fall by an estimated P300,000 annually. Variable
costs are 75 percent of sales and the cost of carrying receivables is 10 percent.
Assume a tax rate of 40 percent and 360 days per year. What would be the decrease in
investment in receivables if the change were made?

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