1. BBC has an average accounts payable balance of $500,000. Its average daily cost of goods sold is $15,000, and it receives terms of 2/15, net 35, from its suppliers. BBC chooses to forgo the discount. Is the firm managing its accounts payable well?
The average number of days it takes for BBC to pay it's vendors is 33.33 days (500000/15000). They are not paying nearly timely enough to receive ia discount, but they are still paying by the last day to pay their invoice which is 35 days. There is no harm and no foul for them to be paying this way. But, they are not managing the account payable well. If the firm were to pay in half that time, they would receive the discount and free up more cash. 2. Max Corp. has an average accounts payable balance of $225,000. Its average daily cost of goods sold is $10,000, and it receives terms of 1/15, net 40, from its suppliers. Max chooses to forgo the discount. Is the firm managing its accounts payable well?
With a avg days to pay the vendors period of 22.5 days, the Max Corp is not taking full advantage of the fact that if they simply paid their vendors 7.5 days sooner, they would get the discount and free up cash. There is no reason for Max Corp to be paying full price for paying just over a week too late. At 22.5 days, they are too close to the discount period and too far from the last day to pay. 3. SportsMart sells 500,000 baseballs annually. The baseballs cost SportsMart $24 per dozen ($2.00 each). Annual inventory carrying costs are 25% of inventory value and the cost of placing and receiving an order are $78. Determine the:
A) Economic Order Quantity
Demand: 500000, Setup cost: 78, Carrying cost: 2*.25 = .50
=2(78)(500000) / (.50)
= 12,490 (1,040/dozen)
B) Total annual inventory costs of this policy
= 2(500000) + 12/2 + 78/12 = 1000000 +6 +936 = 100,942
C) Optimal ordering frequency
=(365 * 12490) /