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calculations. (2*10 points = 20 points) Problem 1 (10 points) Karim Murshed, the new credit manager of the Bagdum Company, was alarmed to find that

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calculations. (2*10 points = 20 points) Problem 1 (10 points) Karim Murshed, the new credit manager of the Bagdum Company, was alarmed to find that Bagdum sells on credit terms of net 90 days while industry-wide credit terms have recently been lowered to net 30 days. On annual credit sales of Tk.2.5 million, Bagdum currently averages 95 days of sales in accounts receivable. Current bad debt is 1 percent. Murshed estimates that tightening the credit terms to 30 days would reduce annual sales to Tk.2,375,000, but accounts receivable would drop to 35 days of sales and the savings on investment in them should more than overcome any loss in profit. Change in credit term would result in a reduction in bad debt by 50 percent. Bagdum's variable cost ratio is 85%. If the interest rate on funds invested in receivables is 18%, should the change in credit terms be made? Problem 2 (2 + 1 + 2+ 2 + 3 = 10 points) Sumatra Bakery and Confectionery uses large quantity of flour in its manufacturing process. Annual consumption of flour by Sumatra is estimated to be 2.42 million kilograms. Orders must be placed in multiples of 1 thousand kilograms. The cost of carrying the inventory is Tk.8 per kilogram. Sumatra's supplier for flour, Messrs Tara Flour Mill, sells the inventory to Sumatra at Tk.40 per kilogram. The cost of ordering the inventory is Tk.520 per order. On an average it takes Tara 2 days to deliver from the day it receives order from Sumatra. However, there have been occasional delays in receiving delivery by a few days. Therefore, Sumatra maintains a safety stock covering a 1 day's period of safety. calculations. (2*10 points = 20 points) Problem 1 (10 points) Karim Murshed, the new credit manager of the Bagdum Company, was alarmed to find that Bagdum sells on credit terms of net 90 days while industry-wide credit terms have recently been lowered to net 30 days. On annual credit sales of Tk.2.5 million, Bagdum currently averages 95 days of sales in accounts receivable. Current bad debt is 1 percent. Murshed estimates that tightening the credit terms to 30 days would reduce annual sales to Tk.2,375,000, but accounts receivable would drop to 35 days of sales and the savings on investment in them should more than overcome any loss in profit. Change in credit term would result in a reduction in bad debt by 50 percent. Bagdum's variable cost ratio is 85%. If the interest rate on funds invested in receivables is 18%, should the change in credit terms be made? Problem 2 (2 + 1 + 2+ 2 + 3 = 10 points) Sumatra Bakery and Confectionery uses large quantity of flour in its manufacturing process. Annual consumption of flour by Sumatra is estimated to be 2.42 million kilograms. Orders must be placed in multiples of 1 thousand kilograms. The cost of carrying the inventory is Tk.8 per kilogram. Sumatra's supplier for flour, Messrs Tara Flour Mill, sells the inventory to Sumatra at Tk.40 per kilogram. The cost of ordering the inventory is Tk.520 per order. On an average it takes Tara 2 days to deliver from the day it receives order from Sumatra. However, there have been occasional delays in receiving delivery by a few days. Therefore, Sumatra maintains a safety stock covering a 1 day's period of safety

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