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INFORMATION As a management accountant, you have recently been recruited to be part of the strategic management accounting team of GHK Accountants. GHK Accountants has been contracted to help turnaround the operations of a struggling manufacturing firm, Apex Manufacturing, which produces a single product. Your review of the literature revealed the key phases of a business turnaround and restructure are outlined below. Assess Triage Stabilize Turnaround Grow You are persuaded that your main role in the turnaround strategy is to provide support for decision making including information gathering and analysis management accounting data about Apex Manufacturing and its competitors, for use in developing and monitoring business strategy, generation of options, choice, implementation, monitoring and evaluation. You are convinced that preserving cash and keeping costs down for Apex Manufacturing will allow it to stabilize and go through financial turnaround and be able to grow again. You have gathered the following information about Apex Manufacturing: . 900 000 units of a certain component is required in the production of Apex Manufacturing annually. The current inventory ordering policy is to order 100 000 units of the component every time Apex Manufacturing places an order with its supplier. The component is purchased from the supplier at R20 000 per unit and it costs R507 to place an order. Direct stockholding cost is 0.2% of the purchase price. Insurance cost of inventory storage is 1% of the purchase price. Lead time is 5 days and safety inventory is 19 000 units. REQUIRED: 4.1. Discuss three strategies that can be implemented to minimise cash conversion cycle of a firm. (3 marks) 4.2. Calculate the economic order quantity (EOQ) of the component (round off answer to the nearest whole number). marks) 4.3. Evaluate the optimality of the current ordering policy (Hint: calculate the total ordering cost and the total carrying cost of the current policy and of the EOQ model). (8 marks) (4 4.4. Calculate the reorder point of the component (assume a 310-working day year). marks) INFORMATION As a management accountant, you have recently been recruited to be part of the strategic management accounting team of GHK Accountants. GHK Accountants has been contracted to help turnaround the operations of a struggling manufacturing firm, Apex Manufacturing, which produces a single product. Your review of the literature revealed the key phases of a business turnaround and restructure are outlined below. Assess Triage Stabilize Turnaround Grow You are persuaded that your main role in the turnaround strategy is to provide support for decision making including information gathering and analysis management accounting data about Apex Manufacturing and its competitors, for use in developing and monitoring business strategy, generation of options, choice, implementation, monitoring and evaluation. You are convinced that preserving cash and keeping costs down for Apex Manufacturing will allow it to stabilize and go through financial turnaround and be able to grow again. You have gathered the following information about Apex Manufacturing: . 900 000 units of a certain component is required in the production of Apex Manufacturing annually. The current inventory ordering policy is to order 100 000 units of the component every time Apex Manufacturing places an order with its supplier. The component is purchased from the supplier at R20 000 per unit and it costs R507 to place an order. Direct stockholding cost is 0.2% of the purchase price. Insurance cost of inventory storage is 1% of the purchase price. Lead time is 5 days and safety inventory is 19 000 units. REQUIRED: 4.1. Discuss three strategies that can be implemented to minimise cash conversion cycle of a firm. (3 marks) 4.2. Calculate the economic order quantity (EOQ) of the component (round off answer to the nearest whole number). marks) 4.3. Evaluate the optimality of the current ordering policy (Hint: calculate the total ordering cost and the total carrying cost of the current policy and of the EOQ model). (8 marks) (4 4.4. Calculate the reorder point of the component (assume a 310-working day year). marks)
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Required 4 41 Three Strategies to Minimize Cash Conversion Cycle CCC A companys cash conversion cycle CCC represents the time it takes to convert cash into inventory then into sales and finally back i... View the full answer
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