Chapter 3: 6BP (page 249)
Sol Pine borrows $5,000 for one year at 13 percent interest. What is the effective rate of interest if the loan is discounted?
The effective interest rate is 14.94%.
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In the second year, Fisk Corporation finds that it can reduce ordering costs to \(2 per order but that carrying costs stay the same at \)1.60 per unit. Also, volume remains at 49,000 units per year.
a. What is the economic ordering quantity?
What are three quantitative measures that can be applied to the collection policy of the firm?
Neon Light Company of Kansas City ships lamps and lighting appliances throughout the country. Ms. Neon has determined that through the establishment of local collection centers around the country, she can speed up the collection of payments by three days. Furthermore, the cash management department of her bank has indicated to her that she can defer her payments on her accounts by one-half day without affecting suppliers. The bank has a remote disbursement center in Florida.
c. If the total cost of the new system is $400,000, should it be implemented?
Antonio Banderos & Scarves make headwear that is very popular in the fall-winter season. Units sold are anticipated as follows:
October | 1,250 |
November | 2,250 |
December | 4,500 |
January | 3,500 |
Total units | 11,500 |
If seasonal production is used, it is assumed that inventory will directly match sales for each month and there will be no inventory build-up.
However, Antonio decides to go with level production to avoid being out of merchandise. He will produce the 11,500 items over four months at a level of 2,875 per month.
a. What is the ending inventory at the end of each month? Compare the units sales to the units produced and keep a running total.
b. If the inventory costs $8 per unit and will be financed at the bank at a cost of 12 percent, what is the monthly financing cost and the total for the four months? (Use 1 percent or the monthly rate.)
Fisk Corporation is trying to improve its inventory control system and has installed an online computer at its retail stores. Fisk anticipates sales of 49,000 units per year, an ordering cost of \(8 per order, and carrying costs of \)1.60 per unit.
a. What is the economic ordering quantity?
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