1. M Inc. is in the process of establishing its optimal safety stock quantity and has provided you the following data:

Suppliers net invoice price P2,000

Carrying cost rate 5%

No. of orders per year 12

Stock out costs per occurrence P4,300

Probability of stock out:

Safety stock Probability

0 90%

100 60%

200 40%

300 25%

400 10%

Determine the following:

1. Carrying cost per unit of safety stock.
2. Optimal safety stock and its total safety stock quantity cost.
3. Assuming an 80% probability of stock out, what is the optimal safety quantity?

2. Cortana Co. feels that its credit costs are too high. By tightening its credit standards, bad debts will fall from 5% to 2%, but sales will fall from P100,000 to P90,000 per year. The variable cost per unit is 60% of the sales price, and the average investment in receivables is expected to remain unchanged. The effective tax rate is 30%. What is the net benefit or cost because of the tightening of the credit standards?