INFORMATION

Read the following case study and answer the questions provided.

INVENTORY AND DEBTOR MANAGEMENT ISSUES AT INVERTERGO $($PTY$)$ LTD

The load$-$shodding woes of Eskom has created opportunities for some businesses. One such business is Invertergo

$($FPy$)$ Ltd which is dedicated to selling imeters to households. Their focus is on cost$-$effectiveness, sustainability and the

reduction an enviranmental impact. Their product offers reliable performance to support the energy storage needs of

consumers. They offer free techrical advice, quick response to customer queries and on$-$time delivery.

As the sales of the company grew so was the need to increase the management team. A newly appointed member of the

team was Kitty Khumalo whose responsibifly was the management of the working capital of invertergo Enterprises. Aes

a few weeks in her position she realised that the management of inventories and debtors required attention and tha

changes were required. She was also made aware of the following:

The company was seeking to expand rapidly to capitalise on the extent of the loadshedding and customer satislactio

was the priority. Consequently, credit was granted to as many of the applicants as possible and high levels of inventorie

were maintained to prevent stock$-$outs from occurring.

The average monthly demand for the inverters was $500$ units. The selling price was R$20000$ each and a mark$-$up of $60$

on cost was used. All the sales are on credit and the credit terms are $90$ days. Collection costs of approximately R$60$

unit sold were incurred. The annual holding cost of an inverter was $2\%$ of the cost of the item. The cost of placing

order for the imverters was R$18\mathrm{.}75.$ The cost of capital was $12\%.$

Kitty proposed the following to the directors;

I The company should take advantage of a $5\%$ discount from the manufacturer by ordering $50$ inverters each time ins

of ordering the economic order quantity.

iA discount of $3\%$ should be granted to those customers who settle their accounts within $12$ days. She expects that

is likely to apply to $60\%$ of the sales.

REQUIRED

Identify the working capital policy of the company and comment on it$.$

Calculate the annual ordering costs based on the EOO.