RQ (Working Capital Management) MANAGERIAL ACCOUNTING

Name: ____________________________ Score: _________

DIRECTION: Write the solution in good form on the space opposite the problem and the final answer
before the number. Erasures and use of frixion pen/pencil are not allowed.

Consider the following data for Cycles

Corporation:

Cash sales P3,200,000

Credit sales 28,800,000
Cost of goods sold 4,374,000
Purchases (80% on account) 17,280,000
Accounts receivable,
beginning balance 820,000
Accounts receivable, ending
balance 1,100,000
Average finished goods
inventory 364,500
Raw materials used 3,060,000
Average raw materials
inventory 170,000
Average accounts payable 384,000

The firms spends P25,200,000 in operating cycle

investments in each year, at a constant rate.
Assume a 360-day year.
1. Calculate the firms operating cycle.
2. Calculate the firms cash conversion cycle.
3. Calculate the amount of resources needed
to support the firms cash conversion
cycle.

Olympians Inc. operates a megastore featuring

sports merchandise. It uses an EOQ decision
model to make inventory decisions. It is now
considering inventory decisions for its Los Ashkals
football jerseys product line. This is a highly
popular item. Data for 2014 are as follows:

Expected annual demand for

Ashkals jerseys 7,350
Ordering cost per purchase
order P200
Carrying cost per year P6 per jersey

Each jersey cost Olympians P40 and sells for P80.

The P6 carrying cost per jersey per year comprises
the required return on investment of P4.80 (12% of
P40 purchase price) plus P1.20 in relevant
insurance, handling, and theft-related costs. The
average purchasing lead time is 7 days. Olympians
is open 365 days a year.
4. Calculate the EOQ.
5. Calculate the number of orders that will be
placed each year.
6. Calculate the total carrying cost and
ordering cost per year.
7. Calculate the reorder point.
8. Assume that there are times when the lead
time reaches a maximum of 10 days. How
many units of safety stock must the
company have, and what should be the
reorder point?

DF Tires Unlimited is a business enterprise located

in the city of Cagayan de Oro. The market price per

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RQ (Working Capital Management) MANAGERIAL ACCOUNTING

unit is P3,000. Since Cagayan de Oro is a very

progressive rural place, the business sells an
average of 36,000 tires annually. Based on a
company study covering the last five years of its
operation, it was found out that annual carrying
cost per tire is P5.00 and the ordering cost is P100
per order. The store is open 7 days a week (which
includes Sundays and holidays). The delivery time
per order (tires are ordered from Manila) is 5 days.
Since it normally takes time before an order is
placed, filled up and delivered, the manager has
decided to keep a safety stock of 3,000 tires which
is equivalent to a months sales.

9. What is the average inventory?

A company has estimated its EOQ for part A at

2,400 units for the coming year.

10. If ordering costs are P200 and carrying

costs are P0.50 per unit per year, what is
the estimated total annual usage?

The China Tee Store sells 100,000 tea bags a year.

Additional data are presented below:

Selling price per bag P2.50

Purchase cost per bag P1.50
Ordering cost per order P5.40
Carrying cost 20% of unit
cost
Number of days the
company operates in a
year 250
Average lead time on
purchases 6 days

11. What is the reorder point if the company

will keep a 10-day safety stock of
inventory?

A softdrinks distributor which buys in a pre-sell

basis, is discussing with the route salesmen on the
proper cases to be ordered and the frequency of
call. From the route book and other records, the
following are available: prior years purchases,
50,000 cases; carrying cost per case of inventory,
P1.20; distributors discount, 1 case for every 10
cases bought; cost of placing an order, P3.00;
weekly demand is approximately 962 cases. Safety
stock required is 140 cases. No change in demand
is expected this year. Use a 365-day, 52-week year.
12. Calculate the EOQ.
13. Calculate the reorder point.

Ferry Company has a safety stock of 160 units and

the average daily demand is 20 units.
14. How many days can be covered if the
shipment from the supplier is delayed by
12 days?

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RQ (Working Capital Management) MANAGERIAL ACCOUNTING

Inventory data for a certain raw material is as

follows:

Annual usage in units 25,000

Working days per year 250
Normal lead time in working
days 30
Maximum lead time in
working days 50

15. Assuming that this raw material will be

required evenly throughout the year, the
order point will be