1. Clapp Off Manufacturing uses 1,600 switch assemblies each week and orders a new shipment of 1,600 each week. If the relevant annual carrying cost per switch assembly is $4 and the fixed order cost is $650:

a.What is the economic order quantity?

b.Is the company's current inventory order policy optimal? Why or why not?

c.Could the company save money by ordering using the economic order quantity? If yes, then how much?

Rusty Spears, CEO of Rusty's Renovations, a custom building and repair company, is preparing documentation for a line of credit request from his commercial banker. Among the required documents is a detailed sales forecast for parts of 2014 and 2015:

2. Estimates obtained from the credit and collection department are as follows: collections within the month of sale, 15%; collections during the month following the sale, 65%; collections the second month following the sale, 20%. Payments for labor and raw materials are typically made during the month following the one in which these costs were incurred. Total costs for labor and raw materials are estimated for each month as shown in the table.

General and administrative salaries will amount to approximately $15,000 a month; lease payments under long-term lease contracts will be $5,00 a month; depreciation charges will be $7,500 a month; miscellaneous expenses will be a $2,000 month; income tax payments of $25,000 will be due in both September and December; and a progress payment of $80,000 on a new office suite must be paid in October. Cash on hand on July 1 will amount to $60,000, and a minimum cash balance of $40,000 will be maintained throughout the cash budget period.

a.Prepare a monthly cash budget for the last 6 months of 2014.

b.Prepare an estimate of the required financing (or excess funds)that is, the amount of money Rusty's Renovations will need to borrow (or will have available to invest)for each month during that period.

c.Rusty's Renovations produces on a seasonal basis, just ahead of sales. Without making any calculations, discuss how the company's current ratio and debt ratio would vary during the year assuming all financial requirements were met by short-term bank loans. Could changes in these ratios affect the firm's ability to obtain bank credit? Why or why not?