Homework 4
Credit and Inventory Management
Due in the next class on 13th December
1.Currently, Glasgow Importers sells 280 units a month at a price of $729 a unit. The firm believes it can increase its sales by an additional 40 units if it switches to a net 30 credit policy. The monthly interest rate is 0.5 percent and the variable cost per unit is $480. What is the net present value of the proposed credit policy switch?
2.Preston Milled Products currently sells a product with a variable cost per unit of $21and a unit selling price of $40. At the present time, the firm only sells on acash basis with monthly sales of 2,800 units. The monthly interest rate is 0.5percent. What is the switch break-even point if the firm switched to a net 30 creditpolicy? ( hint : solve for (Q’ – Q) while keeping the NPV equal to 0 )
3.You have the opportunity to make a one-time sale if you will give a new customer 30days to pay. You suspect there is a 15 percent chance this person will never pay you. The sales price of the item the customer wants to buy is $289. Your variable cost on that item is $156 and your monthly interest rate is 1.75percent. Should you grant credit to this customer? Why or why not?
4.A firm sells 4,500 units of an item each year. The carrying cost per unit is$2.15 and the fixed costs per order are $67. What is the economic order quantity?
Each year you sell 950 units of a product at a price of $899 each. The variable cost per unit is $575 and the carrying cost per unit is $16.90. You have been buying100 units at a time. Your fixed cost of ordering is $60. What is the economic order quantity
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