Jason Co is an online computer trader which made annual sales of $$15,000,000$ last year. The most recent financial statement indicates the company owns $$2,466,000$ trade receivables, $$2,220,000$ trade payables and $$3,000,000$ of overdraft. The customers pay within $60$ days on average.

To encourage customers to pay earlier the company decided that for a payment within $30$ days, the customer will receive an early settlement discount of $1\%.$ The finance department suggests that, under the new policy, only $20\%$ of customers will carry on paying in $60$ days, $30\%$ of customers will pay after $45$ days, and $50\%$ of consumers will take the early discount and pay in $30$ days. The finance provider charges Jason Co $6\%$ annually for overdraft facility and the new policy is also expected to reduce the cost of finance when the interest rate remains constant.

In terms of inventories, Jason Co places an order of $15,000$ units with its supplier every month, which costs $$150$ per order. Last year, the annual cost of materials was $$540,000$ and the holding cost is $$1\mathrm{.}2$ per unit per year. The supplier could now offer a $2\%$ bulk discount for orders over $45,000$ units and the finance department of Jason Co is required to investigate the proposal.

Required  

INVESTIGATE THE PROPOSAL AND SHOW ALL WORKING

 

Answer rating: 100% (QA)

Here are the calculations to analyze the proposal 1 Trade Receivables and Payables under new policy ... View the full answer