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D co Bpp kit mcq

This topic has 3 replies, 2 voices, and was last updated 7 years ago by John Moffat.

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December 10, 2018 at 7:46 pm #488713
maxpopper
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Q. D co decides to offer a 2% early setllement discount that half of all customers take up. They pay in 1 month instead of
usuyal 2. D co pays 10% per annum for its iverdraft facility
What impact will this have?
Can you please explain whhy reported profits will decrease?
Q. Minimum or buffer inventory formula = reorder level – (average usage x avergae lead time). Is this formula included in f9 syllabus?
December 11, 2018 at 6:51 am #489481
John Moffat
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Q1. Because the effective annual cost of the discount is greater than the saved overdraft interest.
Q2. In theory, yes (because it is revision from Paper FA. However it is very unlikely in Paper FM (it is not called F9)
December 11, 2018 at 1:57 pm #491774
maxpopper
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Effective annual cost of discount would be (100/100-98)^(12/1) – 1 = 27.4%
But saved overdraft interest we will take as 10%? Even if question says that half of customer will take discount?
December 11, 2018 at 4:24 pm #491796
John Moffat
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It makes no difference how many take the discount. Whatever the amount, the cost of the discount is more that the interest. (And of course the overdraft interest is 10% – that is exactly what the question says 🙂 )
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