which the discount will apply will increase from 70% to 80%. The company sells only one...

 

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which the discount will apply will increase from 70% to 80%. The company sells only one product for which there is an annual demand of 96 000 units. The purchase price of the and she approached the board of directors who asked her to provide the necessary quantitative motivation for purchases the total cost of placing orders. She also discovered that the company has not been taking advantage of quantity The newly appointed financial manager at Epic Ltd found that the company was using the EOQ model which minimises The financial manager obtained the following information from which she expects to provide her findings to the board: could consequently consider increasing the discount offered to debtors who settle their accounts within 10 days. in greater volumes that are accompanied by quantity discounts. She agreed to do this and also added that the company discounts offered by suppliers due to strict adherence to the EOQ framework. She was not happy with this arrangement variable costs are the costs of purchasing the product. The financial manager wants to change the credit The credit terms of Epic Ltd to its customers are currently offered for the purchase of quantities of 12 001 units or more. terms to 3/10 net 30. As a result of the change in credit terms, the following changes are expected: The debtors collection period will decrease from 42 days to 28 days. The credit sales will increase from 22 000 units to 26 400 units. The bad debts will decrease from 3% of sales to 2% of sales. Lastly, the percentage of the credit sales to discount increases to 5% for quantities of between 4 001 and 12 000 units. A discount of 6% is product is R60 per unit and the cost of placing an order is R120. The annual holding cost per unit is estimated at 20% of 2/10 net 30. The selling price of the product is R100 per unit the unit cost price. The current supplier of the product offers a quantity discount of 4% for a purchase of between 1 501 a and 4 000 units. The and the only a Question 1 (3 Marks) Calculate the EOQ if discounts are not available. (Round off your answer to the nearest whole number.) Question 2 (13 Marks) What purchase quantity would the financial manager recommend to the board of directors if discounts are available? Motivate your answer with the relevant calculations. Question 3 (10 Marks) Would the board of directors approve of the change in the credit terms to customers from 2/10 net 30 to 3/10 net 30, if the required rate of retun on equal-risk investments is 18%? Motivate your answer with the relevant calculations. Question 4 (4 Marks How much will be the loss from bad debts under the new credit terms of 3/10 net 30, if the cost of capital is 15% and th unpaid accounts are written off after 60 days? which the discount will apply will increase from 70% to 80%. The company sells only one product for which there is an annual demand of 96 000 units. The purchase price of the and she approached the board of directors who asked her to provide the necessary quantitative motivation for purchases the total cost of placing orders. She also discovered that the company has not been taking advantage of quantity The newly appointed financial manager at Epic Ltd found that the company was using the EOQ model which minimises The financial manager obtained the following information from which she expects to provide her findings to the board: could consequently consider increasing the discount offered to debtors who settle their accounts within 10 days. in greater volumes that are accompanied by quantity discounts. She agreed to do this and also added that the company discounts offered by suppliers due to strict adherence to the EOQ framework. She was not happy with this arrangement variable costs are the costs of purchasing the product. The financial manager wants to change the credit The credit terms of Epic Ltd to its customers are currently offered for the purchase of quantities of 12 001 units or more. terms to 3/10 net 30. As a result of the change in credit terms, the following changes are expected: The debtors collection period will decrease from 42 days to 28 days. The credit sales will increase from 22 000 units to 26 400 units. The bad debts will decrease from 3% of sales to 2% of sales. Lastly, the percentage of the credit sales to discount increases to 5% for quantities of between 4 001 and 12 000 units. A discount of 6% is product is R60 per unit and the cost of placing an order is R120. The annual holding cost per unit is estimated at 20% of 2/10 net 30. The selling price of the product is R100 per unit the unit cost price. The current supplier of the product offers a quantity discount of 4% for a purchase of between 1 501 a and 4 000 units. The and the only a Question 1 (3 Marks) Calculate the EOQ if discounts are not available. (Round off your answer to the nearest whole number.) Question 2 (13 Marks) What purchase quantity would the financial manager recommend to the board of directors if discounts are available? Motivate your answer with the relevant calculations. Question 3 (10 Marks) Would the board of directors approve of the change in the credit terms to customers from 2/10 net 30 to 3/10 net 30, if the required rate of retun on equal-risk investments is 18%? Motivate your answer with the relevant calculations. Question 4 (4 Marks How much will be the loss from bad debts under the new credit terms of 3/10 net 30, if the cost of capital is 15% and th unpaid accounts are written off after 60 days?