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Receivable Management: Activity 4 - Receivables Management and Inventory Management Essay

This document provides information about receivables management and inventory management. It includes questions about how collection policies and cash discounts influence sales and expenses. It also asks about computing economic order quantity and the relationship between annual ordering costs and order size. For receivables management, it provides data on sales, days sales outstanding, and bad debt expenses for Pedro Corp. For inventory management, it provides data on sales projections, holding costs, order costs, lead time, and reorder points for Scouts Corp. Students are asked multiple calculation questions for each company.

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76 views1 page

Receivable Management: Activity 4 - Receivables Management and Inventory Management Essay

This document provides information about receivables management and inventory management. It includes questions about how collection policies and cash discounts influence sales and expenses. It also asks about computing economic order quantity and the relationship between annual ordering costs and order size. For receivables management, it provides data on sales, days sales outstanding, and bad debt expenses for Pedro Corp. For inventory management, it provides data on sales projections, holding costs, order costs, lead time, and reorder points for Scouts Corp. Students are asked multiple calculation questions for each company.

Uploaded by

unlocks by xiji
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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Activity 4 - Receivables management and Inventory Management

Essay
Rubrics: A total of 10 points each. 8 points for content; 2 points for construction
a. How does collection policy influence sales and the bad debt expenses?
b. How can cash discounts affects the sales volume and the days sales outstanding?
c. Why is there a need to compute for the Economic order quantity?
d. Explain the relationship between the annual ordering cost and the ordering size.

Problems

Receivable Management
Pedro Corp. currently has sales of P2,000,000, and its days sales outstanding is 2 week. The financial manager estimates
that offering longer credit terms would increase the days sales outstanding to 3 weeks and increase the sales by 50%.
However, bad debts losses, which were 1% on the old sales, would amount to 2% only on incremental sales. Variable
cost is 70% of sales. Pedro Corp. has a 10% receivable financing cost. Use 360 days per year.

1. What is the incremental increase in the balance of AR?


2. What is the Change in carrying cost? Indicate if increase or decrease
3. What would the annual incremental pre-tax profit be if Pedro Corp. extended its credit period?

Inventory Management
Scouts Corp. projects its sales to be 1,000 units this year. As a result of holding inventories, insurance, storage, taxes and
other cost are incurred amounted to P2 per unit per year. Every time Scouts Corp. makes an order, P10 is incurred. On
the average it takes 3 days to make and receive an order. (Use 360 days a year).

1. What is the economic order quantity (EOQ)?


2. What is the average inventory?
3. How much is the annual cost of carrying inventory?
4. How many orders will be placed during the year?
5. How much transaction or ordering cost are incurred each year?
6. How much is the annual cost of inventory?
7. What is the reorder point?

Assuming Scouts Corp.’s inventory may take as 5 days to respond:


8. How much safety stock should the company keep?
9. How many units of inventory is the average daily usage?
10. What is the normal lead time usage?
11. What is the reorder point?

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