P15-2 Changing Cash Conversion Cycle Camp Manufacturing

a. Calculate the firm's operation cycle & cash convention cycle.

AAI : 365 days / 8 times inventory = 45.6
OC : AAI + ACP = 105.6
CCC : OC - APP = 70.6

b. Calculate the firm's daily cash operating expenditure.

How much in resources must be invested to support its cash conversion cycle?

Daily Cash Operating Expenditure: Total annual sales (outlays)/365= 9589.04

Resources needed: Daily Expenditure x CCC= 677226.03

c. If the firm pays 14% for these resources, by how much would it increase its annual profits by
favorably changing its current cash conversion cycle by 20 days?

Additional profit financing sale: Daily Expenditure x 20 days x 14% = 26849.32

DEWANTI EKA PRATIWI

36117017
2AD3
P15-4 Aggressive Conservative Seasonal Funding Strategy

a. Divide the firm's monthly funds requirement into

(1) a permanent component and
(2) a seasonal component, and find the monthly average for each of these components.

Total Funds Permanent Seasonal

Months
Requirements Requirements Requirements
Jan $ 2,000,000 $ 2,000,000 $ -
Feb $ 2,000,000 $ 2,000,000 $ -
Mar $ 2,000,000 $ 2,000,000 $ -
Apr $ 4,000,000 $ 2,000,000 $ 2,000,000
May $ 6,000,000 $ 2,000,000 $ 4,000,000
Jun $ 9,000,000 $ 2,000,000 $ 7,000,000
Jul $ 12,000,000 $ 2,000,000 $ 10,000,000
Aug $ 14,000,000 $ 2,000,000 $ 12,000,000
Sep $ 9,000,000 $ 2,000,000 $ 7,000,000
Oct $ 5,000,000 $ 2,000,000 $ 3,000,000
Nov $ 4,000,000 $ 2,000,000 $ 2,000,000
Dec $ 3,000,000 $ 2,000,000 $ 1,000,000

Average Permanent Requirements = $ 2.000.000

Average Seasonal Requirements = Total Seasonal Requirements/12
= $ 48.000.000/12
= $ 4.000.000

b. Describe the amount of long-term and short-term financing used to meet the
total funds requirement under
(1) an aggressive funding strategy and
(2) aconsevative funding strategy. Assume that, under the aggressive strategy,
long-term funds finance permanent needs and short-term funds are use to
finance seasonal needs.

--> 1. If funding strategy is aggressive, the company will borrow one million to twelve million
in accordance with has been scheduled in the seosonal requirements or in this case in table
a for a short period of time. Another case, if company borrows two million or for permanent
requirements from the time period specified in long-term funding.
2. If funding strategy is conservative, the company will borrow at most forteen million for the long term

c. Assuming that short-term funds cost 12% annually and that the cost of
long-term funds in 17% annually, use the averages found in part 'a' to calculate
the total cost of each of the strategies described in part 'b'.

Aggressive: ($ 2.000.000 x 17%)+($ 4.000.000 x 12%)

: $ 820,000
Conservative: $ 14.000.000 x 17%
: $ 2,380,000

d. Discuss the profirtability-risk trade-offs associated with the aggressive strategy

and those associated with the conservative strategy.

---> If the funding strategy, then the possibility of a high return will guarantee a higher risk too. if the stargo
conservative, the company is required to pay interest on funds that are not needed, the cost will be highe
So, in my opinion, aggressive strategies will be more profitable, but more risky than conservative strateg
 elve million
his case in table
or for permanent

n million for the long term

 higher risk too. if the stargor is
needed, the cost will be higher.
sky than conservative strategies
P15-5 EOQ Analysis

a. Determine the EOQ under each of the following conditions:

(1) no charges,
(2) order cost of zero, and
(3) carrying cost of zero.

1. No charges

= 10540.926

$2 x 27%
2. Order cost of zero

= 0

3. Carrying cost of zero

= ∞/ Undefined

b. What do your answers illustrate about the EOQ model? Explain.

---> In managing inventory stock business, known as inventory management,

we know the term model of economic order quantity (EOQ). EOQ in
inventory settings aims to minimize total costs, and keep inventory and ordering costs.
P15-6 EOQ, Reorder Point, and Safety Stock

a. Calculate the EOQ

= 200

b. Determine the average level of inventory.

(Note: use a 365-day year to calculate daily usage)

Average level of inventory =

= 121.92

c. Determine the reorder point.

= 32.88

d. Indicate which of the following variables change if the firm does not hold
the safety stock:
(1) order cost, (2) carrying cost, (3) total inventory stock,
(4) reorder point, (5) EOQ. Explain.

Change: Carrying Cost, Total Inventory Cost, and Reorder Point

Don't change: Ordering Cost and EOQ
P15-9 Account Receivable Changes With Bad Debts

a. What are bad debts in dollars currently and under the proposed change?

Bad debts
Proposed Plan 4% x $20 x 60.000 = $ 48,000

b. Calculate the cost of the marginal bad debts to the firm.

Proposed Plan 4% x $20 x 60.000 = $ 48,000

Present Plan 2% x $20 x 50.000 = $ 20,000
Cost of marginal bad debts $ 28,000

c. Ignoring the additional profit contribution from increased sales, if the

proposed change saves $3.500 and causes no change in the average investment
in accounts receivable, would you recommend it? Explain.

---. In My opinion, nothing is needed if the marginal cost of bad debts exceeds
savings of $ 3.500

d. Considering all changes in costs and benefits, would you recommend the
proposed change? Explain.

Additional profit contribution for sales:

10.000 additional units x (20-15) $ 50,000
Part 'b' $ (28,000)
Savings $ 3,500
Net benefit from proposed plan $ 25,500

---> In my opinion, the above method is recommended because the increase and
savings of 3,800 exceed the increase in the actual loss of accounts receivable

e. Compare and discuss your answers in part c and d.

-
P15-10 Relaxation of Credit Standards

Additional Profit From Sales:

1.000 additional units x (40-31) = $ 9,000

Cost of marginal sales in AR:

Average investment (proposed plan):

= $ 56,054.79

Average investment (present plan):

= $ 42,041.10

Marginal investment in AR $ 14,013.70

Required return of investment 25%
Cost of marginal investment in AR $ (3,503.42)
Cost of marginal bad debts:
Bad debts, proposed plan
$40 x 11.000 x 3% $ 13,200
Bad debts, present plan
$40 x 10.000 x 1% $ 4,000
Cost of marginal bad debts $ (9,200.00)
Net loss from implementating
$ (3,703.42)
Proposed plan

So, the credit standard shouldn't be relaxed since the proposed

plan result LOSS.