QUESTION 4 [20]

4.1 Cool Kids annual sales amount to 300 000 units. Orders are placed in multiples of 100 units. The purchasing price is R1 per unit. The carrying cost of inventory equals 25% of the purchase price of goods. The ordering cost is R20 per order. Three days are required for delivery. The desired safety stock for the firm is 10 000 units. This amount is on hand. Required:

4.1.1 Calculate the EOQ for Cool Kids. (4)

4.1.2 Determine the number of orders to be placed each year. (Assume a 360 day year) (3) 4.1.3 Determine the re-order point for inventory. (3

4.2 The following data was extracted from the company statements of Up Jean Ltd, a clothing retail outlet for the year ended 31 March 2019:

Credit purchases R330 000

Credit sales R590 000

Opening stock R87 500

Closing stock R75 000

Debtors R98 500

Creditors R41 000

Required:

4.2.1 Calculate the length of the working capital cycle by making use of the ratios, days stock on hand (inventory);

debtors collection period (receivables) and creditors (payables) settlement period. (10)