Questions -

Q1. The Trektronics store begins each week with 230 phasers in stock. This stock is depleted each week and reordered. The carrying cost per phaser is $56 per year and the fixed order cost is $116.

Required:

(a) What is the total carrying cost?

(b) What is the restocking cost?

(c) Calculate the economic order quantity.

(d) Calculate the number of orders per year.

(e) Should Trektronics increase or decrease its order size?

Q2. The Arizona Bay Corporation sells on credit terms of net 30. Its accounts are, on average, 9 days past due.

Required: If annual credit sales are $9 million, what is the company's balance sheet amount in accounts receivable?

Q3. Your neighbor goes to the post office once a month and picks up two checks, one for $19,000 and one for $2,000. The larger check takes 3 days to clear after it is deposited; the smaller one takes 4 days. Assume 30 days per month.

Required:

(a) What is the total float for the month?

(b) What is the average daily float?

(c) What are the average daily receipts and weighted average delay?

Q3. It takes Cookie Cutter Modular Homes, Inc., about 7 days to receive and deposit checks from customers. Cookie Cutter's management is considering a lockbox system to reduce the firm's collection times. It is expected that the lockbox system will reduce receipt and deposit times to 2 days total. Average daily collections are $95,000, and the required rate of return is 7 percent per year.

Requirement 1: What is the reduction in outstanding cash balances as a result of implementing the lockbox system?

Requirement 2: What is the dollar return that could be earned on these savings?

Requirement 3: (a) What is the maximum monthly charge Cookie Cutter should pay for this lockbox system if the payment is due at the end of the month?

(b) What is the maximum monthly charge Cookie Cutter should pay for this lockbox system if the payment is due at the beginning of the month?