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In section a it asks about EOQ model and i have found that the average inventory is wrong can someone check this and get back to me,,,, its read 5000+5000/2 = 7500 units (in the answer) – i am sure its 5000 but couldnt believe that if that is wrong how bad if people got it right!!
I get it should really be (5000/2) + 5000 = 7500
not to worry!!!
I am not sure that I understand your problem 🙂
5000 + 5000/2 does indeed equal 7500 !!
(There is no need for brackets at all – if it was (5000 + 5000) / 2 then indeed it would be different !
In section C , Receivable Mgt
why don’t we consider cost of short term finance 5.5% in calculation of cost section .
75% of customer took 60days credit , do we need to finance for that 60days ?Thanks
Yes to both questions!
I don’t know which answer you are looking at, but we compare the current level of receivables with the average level of receivables if the discount is offered (by calculating the average receivables days – (25% x 30) + (75% x 60)) and then cost it out at 5.5%.
For the benefit of anyone else reading this, the question is from the December 2010 exam.
Can we add one more calculation like
Cost of finance who do not take discount and pay in 60days
$87.6M * 5.5% * 60/365 ?Then total cost would be $1011000 .
Pls correct me if my thinking is wrong 😛
No – although you can by all means show the costing differently, to do both what is in the answer and what you have written would be ‘double counting’.
Whichever way you show the costing (and the way in the answer is the most sensible way (and the way I do it in the free lecture on this) the final answer should be the same.
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