Question

1. Grannie’s Jelly Beans currently has an inventory turnover of 36.5, a payables turnover of 18.25, and a receivables turnover of 24.33. How many days are in the cash cycle (to the nearest whole year and please show how you arrive at your answer)

2. A grocery store sells 43,000 cans of peas per year at an average price of $0.95 per can. The carrying cost per can is $0.05. The store orders 2,000 cans at a time and the fixed order cost of $4.80 per order. The peas are sold out before they are restocked. What is the economic order quantity that the store should order?

3. Clap Off manufacturing uses 1,150 switch assemblies per week, and then reorders another 1,150 for the next week. If the carrying cost per unit is $5.50 and the fixed order cost is $62.50:

a) What is the annual cost of restocking inventory each week?

b) What is the annual carrying cost of the average inventory of switches?

Is Clap Off using an efficient inventory management system, or can they lower the annual cost of inventory? If so, how? (in words – no calculation)

Answer 1

Part 1:

?Investory Turnover = 36.5

Days of inventory outstanding = 365/Inventory Turnover 36.5 = 10 days

Paybles Turnover = 18.25

Days of paybles outstanding = 365 / Paybles Turnover 18.25 = 20 days

Receivables turnover = 24.33

Days of receivables outstanding = 365 / Receivables turnover 24.33 = 15 days

Cash Cycle = Days of receivables outstanding 15 + Days of inventory outstanding 10 - Days of paybles outstanding 20

Cash Cycle = 5 days

Part 2:

Economic order quantity =

Economic order quantity =

Economic order quantity = 2032 units

Part 3:

a) Annual cost of restocking per week = Fixed cost of order $62.50 * Number of week 52

Annual cost of restocking per week = $3250

b) Annual carrying cost = Average inventory / week 1150 * Carrying cost per unit $5.50 * Number of weeks 52

Annual carrying cost = $328,900

c) Efficient inventory system should be based on the economic order quantity =

Economic Order Quantity = 825 units

Since the EOQ is different than current inventory management system hence the company is going to lower annual cost of inventory my shifting into EOQ.