Problem 1 (See pages 209 - 210 and Practice Problem 2 with solution, Page 219)

Mountain Health System, Inc. is a well-known and reputable supplier of integrated heart monitoring devices. The firm is currently debating whether to expand its sales overseas. While the firm expects an extra $3 million in sales if it enters foreign markets, it also knows that 15% of its sales will ultimately be uncollectible. In addition, selling costs will be 3% on all new sales and the firm's production costs are 80% of sales. Mountain Health System's tax rate is 30%. (PLEASE SHOW YOUR WORK).

a) Calculate Mountain Health System's additional net income from the new sales.

b) If the average investment in accounts receivable is $750,000 and management requires that any new project earn a minimum of 10% return on investment. Should the firm enter the foreign markets?

Problem 2 (See Pages 211 - 214)

Novelty Medical Pacemakers, Inc. is experiencing some inventory control problems. The manager, Wanda Mollick, currently orders 10,000 units four times each year to handle annual demand of 40,000 units. Each order costs $15 and each unit costs $1.50 to carry. Ms. Mollick maintains a safety stock of 200 units. (PLEASE SHOW YOU WORK).

a) What is Novelty Medical Pacemakers' current total annual inventory cost? (Hint: use current data to answer this question. Order size= 10,000 units, # of orders per year= 4 orders, sales in units= 40,000 units, order cost= $15 per order, carrying cost per unit= $1.50)

b) Calculate the economic ordering quantity (EOQ).

c) What is average inventory under EOQ if Ms. Mollick maintains a safety stock of 200 units?

d) Calculate total annual inventory cost under EOQ. How does this compare to her current inventory costs (see part a)?

Problem 3 (See Pages 211 - 214)

The Medical Corporation of America has developed a new type of body temperature thermometer. The company expects to sell 18,750 thermometers at a selling price of $100 per unit. The company maintains a safety stock of 35 units to eliminated stock-outs. The manager would like to cut costs as much as possible and decided to implement the EOQ inventory management system to minimize the total costs of inventory. Ordering cost is $100 per order and each unit costs $5 to carry. (PLEASE SHOW YOUR WORK).

a) What is the economic order quantity?

b) What is the amount of average inventory?

c) How many orders will be made per year?

d) What is the total cost of this inventory decision?