Bambang has received a proposal from Metrobank to establish a lock-box system to accelerate the receipt of

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Question:

Bambang has received a proposal from Metrobank to establish a lock-box system to accelerate the receipt of P500 million annually on 1,000,000 checks. By its own analysis, Bambang believes such a system would decrease total float by 3 days. If Bambang can earn 8 percent before taxes on the released funds, what is the maximum that Bambang should be willing to pay the bank per check for the service.

2) Doroteo is a distributor of infant apparel. The company expects to receive 100,000 checks during the coming year totaling P18 million. BPI has offered to install a lock-box system at a charge of P.20 per processed check. If Doroteo is able to earn 5 percent before tax on additional funds, what is the minimum amount of total float days that must be saved to make the system worthwhile.

3) Vito Cruz expects to have P5 million in credit sales during the coming year. In spite of a national distributing system, all remittances are sent to the head office. A proposed system can eliminate 3 days of float, releasing funds which, when invested, will earn 7 percent. What annual savings can Vito Cruz expect if the system is implemented.

4) Libertad expects to have credit sales of P18,000,000 this year. BDO is offering Libertad a lock-box system for P1,000 per month. Libertad estimates that the new lock-box system will reduce float by 5 days. What rate of return must Libertad earn on its trading securities to make it worthwhile for the company to institute this lock-box system.

5) Lawton expects to generate sales of P44,000,000 in the coming year. Lawton has estimated that it takes an average of three days for payments to reach their central office and an additional two days to process the payments. What is the opportunity cost of the funds tied up in the mail and processing? Lawton uses a 360-day year in all calculations and can invest free funds at 6%.

6) Gilmore Company has material that has a P7 per meter carrying cost per year. This textile is used at a rate of 25,000 meters per year, and ordering costs are P5 per order.

a.What is the economic order quantity for this fabric.

b.What are the annual inventory costs for this company if it orders in this quantity.

7) There are weaknesses associated with several assumptions of EOQ model employed by Santolan. What are these weaknesses.