Attached are 4 homework problems as well as three of the four

| June 3, 2016

17.6. Net Float (10/10)
a. First scenario
1. The disbursement float.
Disbursement float = 4($19,500)
Disbursement float = $78,000
2. The collection float.
Collection float = 2($37,200)
Collection float = $74,400
3. The net float is the disbursement float plus the collection float.
Net float = $78,000 74,400
Net float = $3,600
b. Second scenario
1. The new collection float will be:
Collection float = 1($37,200)
Collection float = $37,200
2. And the new net float will be:
Net float = $78,000 37,200
Net float = $40,800


a. First scenario
1. The total sales of the firm are equal to the total credit sales
since all sales are on credit.
Total credit sales = 6,500($270)
Total credit sales = $1,755,000
2. The average collection period is the percentage of accounts taking
the discount times the discount period, plus the percentage of accounts not
taking the discount times the days until full payment is required, so:
Average collection period = .40(10) + .60(30)
Average collection period = 22 days
3. The receivables turnover is 365 divided by the average collection
period, so:
Receivables turnover = 365/22
Receivables turnover = 16.591 times
4. And the average receivables are the credit sales divided by the
receivables turnover so:
Average receivables = $1,755,000/16.591
Average receivables = $105,780.82

b. Change in policy. Explain.
If the firm increases the cash discount, more people will pay sooner, thus
lowering the average collection period. If the ACP declines, the
receivables turnover increases, which will lead to a decrease in the
average receivables.

17.14. a. What are the carrying costs? They are the average inventory times the cost of
carrying an individual unit.
Carrying costs = (740/2)($26)
Carrying costs = $9,620
b. What are the restocking costs?
Restocking costs = 12($340)
Restocking costs = $4,080
c. Should the company increase or decrease its order size?
EOQ = [(2T × F)/CC]1/2
EOQ = [2(12)(740)($340)/$26]1/2
EOQ = 481.92
The number of orders per year will be the total units sold per year divided
by the EOQ.
Number of orders per year = 12(740)/481.92
Number of orders per year = 18.43
d. What is your opinion of the firms policy?
The firms policy is not optimal, since the carrying costs and the order
costs are not equal. The company should decrease the order size and
increase the number of orders.

Week 7 Homework Assignment:
Chapter 17: 6, 7, and 14

Excel File 1

6. Calculating Net Float. Each business day, on average, a company writes checks totaling
$19,500 to pay its suppliers. The usual clearing time for the checks is four days. Meanwhile, the
company is receiving payments from its customers each day, in the form of checks, totaling
$37,200. The cash from the payments is available to the firm after two days.


Calculate the companys disbursement float, collection float, and net float.

How would your answer to part (a) change if the collected funds were available in one
day instead of two?

7. Size of Accounts Receivable. Essence of Skunk Fragrances, Ltd., sells 6,500 units of its
perfume collection each year at a price per unit of $270. All sales are on credit with terms of
1/10, net 30. The discount is taken by 40 percent of the customers. What is the amount of the
companys accounts receivable? In reaction to sales by its main competitor, Sewage Spray,
Essence of Skunk is considering a change in its credit policy to terms of 3/10, net 30 to preserve
its market share. How will this change in policy affect accounts receivable?

14. EOQ. The Trektronics store begins each month with 740 phasers in stock. This stock is
depleted each month and reordered. If the carrying cost per phaser is $26 per year and the
fixed order cost is $340, what is the total carrying cost? What is the restocking cost? Should the
company increase or decrease its order size? Describe an optimal inventory policy for the
company in terms of order size and order frequency.

Excel File 2

3. Calculating Float. You have $27,900 on deposit with no outstanding checks or uncleared
deposits. One day you write a check for $4,300 and then deposit a check for $5,400. What are
your disbursement, collection, and net floats?
what was the point of the analysis and your conclusion?

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