QUESTION 5 (25 marks) (30 minutes) This question consists of two separate parts, both of which must be answered. PART 5.1 (10) Mpho Limited uses the economic order quantity formula (EOQ) to establish its optimal reorder quantity for its single raw material. The following data relate to the inventory costs: Purchase price: R15 per item Ordering costs: R5 per order Storage costs: 10% of the purchase price plus R0,20 per unit per annum Annual demand: 3 825 units REQUIRED: 5.1.1 Calculate the EOQ 5.1.2 Using the EOQ calculate the number of orders that will be placed during the year 5.1.3 Using the EOQ calculate the ordering and holding costs for the year 5.1.4 What assumptions underlie the EOQ model? (3) (2) (2) (3) PART 5.2 (15) The following efficiency ratios, based on the audited financial statements of Mpho Limited, are presented to you: 2018 2019 Debtors collection period 20 days 25 days Inventory turnover ratio 4,2 times 4,8 times REQUIRED: 5.2.1 Write down the formulas that are used to calculate the debtors' collection period and the (2) inventory turnover ratio. 5.2.2 What does the debtors' collection period and inventory turnover ratio indicate to an (2) analyst? 5.2.3 Briefly describe the chronology of converting current assets into cash. (2) 5.2.4 Discuss in full your interpretation of the debtors' collection period for 2019. (2) 5.2.5 Outline the suitable steps for verifying a customer's creditworthiness. (3) 5.2.6 Name three (3) ratios that an analyst would use to help assess the efficiency and (3) effectiveness of inventory management. 5.2.7 Name one risk of carrying too much inventory. (1) ros