QUESTION FIVE [20] 13 January 2016

5.1. A vehicle shampoo supplier presents the following data in respect of their purchases:

Annual demand 212 000 units

Maximum daily requirement 1 800 units

Average daily requirement 1 060 units

Carrying cost R1, 80 per unit.

Ordering cost R40 per order

Lead time 14 days

Time needed to acquire emergency supplies 3 days

NB: Assume that sales are even throughout the year.

5.1.1. Determine the economic order quantity (EOQ). (3)

5.1.2. Determine the ordering point. (3)

5.1.3. Calculate the danger level. (3)

5.2. Assume that Brilliant Blenders are offered terms of 1, 5/10 net 30. If the embedded discount is not taken, then the full amount becomes due. Calculate the cost of forgoing the discount. (3)

5.3. Factoring

5.3.1. Define the term factoring and explain the advantages of factoring. (3)

5.3.2. Bic Bunglers factors all its accounts receivables. The factoring agreement they have concluded is a 10% reserve is held and a 3% commission is charged on the book value of the account. Further interest is charged at 2% per month (25% per annum) on advances. Bic wants to factor an account of R8 000 that falls due in 30 days.

5.3.2.1. What is the advance that Bic will receive? (4)

5.3.2.2. What is the net cost to Bic? (1)