BQ Ltd usually sells 800 units of a certain product per year. The product has a fixed order cost of R50. In order to keep in storage costs the company R2 per unit per year. It takes 5 days to receive an order once it has been placed and the company prefers to hold 10 days' worth of inventory on hand as a safety measure.

You are required to:

2.1.1 Calculate the economic order quantity. (3)

2.1.2 Calculate the average level of inventory. (3)

2.1.3 Calculate the reorder point. (3)

2.2 AP Ltd is looking at methods to manage its cash efficiently. Inventory is on average in the storeroom for 90 days before it is sold. Accounts receivable are collected in 60 days and accounts payable are settled after 30 days. The company's annual sales amount to R30 million.

You are required to:

2.2.1 Calculate the cash conversion cycle. (3)

2.2.2 Discuss how management can reduce the cash conversion cycle. (3)