Question 1 (4 Marks)

Hijau Berhad imports and markets special floating golf balls to various clients throughout Malaysia. The company is reviewing its purchasing policy. It expects to sell 624,000 balls next year. The cost price of each ball is RM2.40 and is sold in dozens. Storage and other carrying cost are estimated at RM0.10 per ball. The ordering cost is RM20 per order. The delivery time is two weeks and the safety stock level is 12,000 balls. The demand for such balls per year is about 52,000 dozen.

Calculate:

a) The optimal economic order quantity.

b) The annual inventory cost for the company if it orders in this quantity.

Question 2 (3 Marks)

Merah Saga Berhad has RM5 million in inventory and RM2 million in accounts receivable. Its average daily sales are RM100,000. The companys payables deferral period (accounts payable divided by daily purchases) is 30 days. What is the length of the companys cash conversion cycle?

Question 3 (3 Marks)

A firm is offered trade credit terms of 3/15, net 45 days. The firm does not take the discount, and it pays after 67 days. What is the nominal annual cost of not taking the discount? (Assume a 365-day year.)