Jason Co places monthly orders with a supplier for 10,000 components which are used in its manufacturing processes. Annual demand is 120,000 components. The current terms are payment in full within 90 days, which Jason Co meets, and the cost per component is $7.50. The cost of ordering is $200 per order, while the cost of holding components in inventory is $1.00 per component per year. The supplier has offered a discount of 3.6% on orders of 30,000 or more components. If the bulk purchase discount is taken, the cost of holding components in inventory would increase to $2.20 per component per year due to the need for a larger storage facility.

What is the current total annual cost of inventory.

What is the total annual inventory cost if Jason Co orders 30,000 components at a time.

Jason Co has annual credit sales of $25m and accounts receivable of $5m. Working capital is financed by an overdraft at 10% interest per year. Assume 365 days in a year. What is the annual finance cost saving if Jason Co reduces the collection period to 60 days.

It is the middle of December 2016 and Jason Co is looking at working capital management for January 2017. Forecast financial information at the start of January 20X7 is as follows:

Inventory $455,000

Trade receivables $408,350

Trade payables $186,700

Overdraft $240,250

All sales are on credit and they are expected to be $3.5m for 2016. Monthly sales are as follows:

November 20X6 (actual) $270,875

December 20X6 (forecast) $300,000

January 20X7 (forecast) $350,000

Jason Co has a gross profit margin of 40%. Although Jason Co offers 30 days credit, only 60% of customers pay in the month following purchase, while remaining customers take an additional month of credit.

Inventory is expected to increase by $52,250 during January 20X7. Jason Co plans to pay 70% of trade payables in January 20X7 and defer paying the remaining 30% until the end of February 20X7. All suppliers of the company require payment within 30 days. Credit purchases from suppliers during January 20X7 are expected to be $250,000. Interest of $70,000 is due to be paid in January 20X7 on fixed rate bank debt. Operating cash outflows are expected to be $146,500 in January 20X7. Jason Co has no cash and relies on its overdraft to finance daily operations. The company has no plans to raise long-term finance during January 20X7. Assume that each year has 360 days.

Calculate the cash operating cycle of Jason Co at the start of January 2017.(ii) Calculate the overdraft expected at the end of January 2017.(iii) Calculate the current ratios at the start and end of January 20X7.(b) Discuss FIVE techniques that Jason Co could use in managing trade receivables.