Shine Co sells two products X and Y, with sales of both products occurring consistently during...

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Shine Co sells two products X and Y, with sales of both products occurring consistently during the year. Product X The annual demand for Product X is 300,000 units and an order for new inventory is placed each month. Each order costs RM267 to place. The cost of holding Product X in inventory is 10 cents per unit per year. Buffer inventory equal to 40% of one month's sales is maintained. Product Y The annual demand for Product Y is 456,000 units per year and Shine Co buys in this product at RM 1 per unit on credit for 60 days. The supplier has offered an early settlement discount of 1% for settlement of invoices within 30 days. Additional information Shine Co finances working capital with short-term finance costing 5% per year. Assume that there are 365 days in each year. Required: a. Calculate the following values for Product X: i) The total cost of the current ordering policy: [3 marks] ii) The total cost of an ordering policy using the economic order quantity: (round up to nearest value) [3 marks] iii) The net cost or saving of introducing an ordering policy using the economic order quantity. [1 mark] b. Calculate the net value in currency to Shine Co of accepting the early settlement discount for Product Y. [3 marks] c. Identify the objectives of working capital management and discuss the central role of working capital management in financial management. [4 marks] d. Critically discuss the similarities and differences between working capital policies in the following areas: i) Working capital investment; ii) Working capital financing. [3 marks] [3 marks] [Total: 20 marks] Shine Co sells two products X and Y, with sales of both products occurring consistently during the year. Product X The annual demand for Product X is 300,000 units and an order for new inventory is placed each month. Each order costs RM267 to place. The cost of holding Product X in inventory is 10 cents per unit per year. Buffer inventory equal to 40% of one month's sales is maintained. Product Y The annual demand for Product Y is 456,000 units per year and Shine Co buys in this product at RM 1 per unit on credit for 60 days. The supplier has offered an early settlement discount of 1% for settlement of invoices within 30 days. Additional information Shine Co finances working capital with short-term finance costing 5% per year. Assume that there are 365 days in each year. Required: a. Calculate the following values for Product X: i) The total cost of the current ordering policy: [3 marks] ii) The total cost of an ordering policy using the economic order quantity: (round up to nearest value) [3 marks] iii) The net cost or saving of introducing an ordering policy using the economic order quantity. [1 mark] b. Calculate the net value in currency to Shine Co of accepting the early settlement discount for Product Y. [3 marks] c. Identify the objectives of working capital management and discuss the central role of working capital management in financial management. [4 marks] d. Critically discuss the similarities and differences between working capital policies in the following areas: i) Working capital investment; ii) Working capital financing. [3 marks] [3 marks] [Total: 20 marks]

Answer rating: 100% (QA)

b To calculate the net value of accepting the early settlement discount for Product Y we need to consider the cost of financing the credit period the cost of the discount and the cost of early settlem... View the full answer