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Hi,
I wondered whether you could help with the following question:
Benden Co is a manufacturer of premium priced clothing, based in Country B. Benden Co’s current share price is $2.00, having increased by $0.20 over the past year. Its latest dividend per share is $0.10, which is an increase of $0.02 compared to the previous year.
Benden Co places monthly orders with a supplier for 10,000 buttons that are used in its manufacturing processes. Monthly demand is also 10,000 buttons.
The cost per button is $0.08. The cost of ordering is $200 per order, and the cost of holding buttons in inventory is $1.00 per unit per year.
The current terms are payment in full within 90 days, which Benden Co meets. The supplier has offered a discount of 3% for payment in full within 30 days.
Assume a 360 day year.
(4) Which is the annual percentage cost of ignoring the discount and continuing to pay after 90 days?
Thanks
SimoneI think it’s….
First, you calculate the cost of holding demand is 10,000 buttons at $1.00 per unit per year, is $10,000.So, the number of orders placed per year would be 12 orders at * $200 = $2,400.
The total cost of ignoring the discount can be calculated by adding the annual holding cost and the annual ordering cost. Therefore, the total cost of ignoring the discount would be $10,000 + $2,400 = $12,400.
No calculate the annual percentage cost of ignoring the discount at 3% ( discount offered by the supplier ) is 3%, which is 3% * $12,400 = $372.
To calculate the annual percentage cost, we divide the cost of ignoring the discount by the total cost of ignoring the discount and multiply by 100. Therefore, the annual percentage cost of ignoring the discount and continuing to pay after 90 days would be ($372 / $12,400) * 100 = 3%.
Apparently it’s 18.54%, and they have used 3.09% to get to answer (see below), but I have no idea where 3.09% comes from…
This can be converted into an annual equivalent by multiplying 3.09% by 360 days / 60 days to give 18.54%.
Notes on incorrect answers
18.00% – incorrectly based on the cost of the lost discount as a % of the amount paid after 90 days (288/9,600)
3.09% is not annualised
3% again is not annualised or based on the amount that would be paid after 30 daysWhere is this question from?
I can’t help you if I don’t know the question
I am trying my best to work it out, soThe 3.09
Is (1+ 3/97) ^ 360/60
3 Disc
97 is 100 – disc
360 days a yr
reduced by 60Or annual equivalent
3.09 * 360/60 = 18.54%The question is in the original post…
“The current terms are payment in full within 90 days, which Benden Co meets. The supplier has offered a discount of 3% for payment in full within 30 days.
Assume a 360 day year.
(4) Which is the annual percentage cost of ignoring the discount and continuing to pay after 90 days?”
No, I am asking you where this question is from.
Which exam kit?
I can’t find it in BPP or Kaplan
Apologies.
I’m trialing BPP’s Stay Sharp subscription – The question is in Step Ladder 2.I don’t have access to this question anyway :0-)
Are you happy with my answer:
The 3.09
Is (1+ 3/97) ^ 360/60
3 Disc
97 is 100 – disc
360 days a yr
reduced by 60Or annual equivalent
3.09 * 360/60 = 18.54%Thank you so much for your help, but I’m afraid I don’t get it, and to be honest I am not going to spend anymore time on it – I’m going to move on. Your initial answer of 3% makes sense and that’s the answer I got.
My frustration with BPP is that they throw in curveball questions and answers that haven’t be covered in the workbook and they provide no explanation in their answers. They just expect you to know how the answer was calculated. If we knew that, we’d all pass our exams first time without needing tuition.
Which is why I am seriously considering not using them for my PM exams in June.
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