1. Heng Brothers office equipment company carries an inventory of spare parts that cost RM40 each. The firm's inventory carrying cost is approximately 15% of the value of the inventory. It costs RM90 to place, process, and receive an order. The estimated annual requirement is 78,000 units.
2. 1. Calculate the economic order quantity (EOQ) level.
3. 2. How many orders will be placed each year if the EOQ is used?
4. 3. What are the carrying and ordering costs for the spare parts?
5. Explain the costs and benefits in the trade-off between a tighter versus a looser receivables (debtors) policy.
6. The CEO of Goldbars Sdn Bhd walked into the CFOs office asking why the firm has not financed all of its working capital needs with short-term bank loans given that the interest rate is currently low. The firms CFO has asked you to prepare a memo outlining the working capital financing options available to similar firms and the trade-offs involved in using long term versus short term financing for working capital as well as explaining why the suggestion by the CEO may not be the best strategy for the firm.