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Sample Problems
Sample Problems
Problem 1a:
The following data are taken from the records of Apple Corp. for the year ended Dec 31, 2018.
Net Credit Sales P576,000
Ave. Inventory 12,000
Ave. Accounts Receivable 80,000
Ave. Accounts Payable 5,000
Net Credit Purchases 120,000
Gross Profit Rate 25%
Cash Management
Problem 2a:
A Company estimates a cash requirement of P2,000,000 for a 1 month period. The opportunity
interest rate is 6% per annum, which works out to 0.5 percent per month. The transaction cost for
borrowing or withdrawing funds is P150. Compute for the Optimal Cash Balance.
Optimal Cash Balance = √(2x Demand for Cash x Transaction Cost)/ interest for the period
= √(2 x P2,000,000 x P150) / 0.005
= P346,410.16
Inventory Management
Problem 3a:
Assume you have a product with the following parameters:
Annual Demand = 360 units
Holding cost per year (Carrying Cost) = P1.00 per unit
Ordering Cost:100 per order
Problem 3b:
Given the data from Problem 3, and assuming a 300-day work year; how many orders should be
processed per year? What is the expected time between orders?
Demand 360
N 134
. orders per year
Q 268
Working days
T 300 / 134
. 224 days between orders
Expected number of orders
Problem 3c:
What is the total cost for the inventory policy used in Problem 3?
Total Inventory Cost = Order Cost * (Demand/EOQ) + Carrying Cost * (EOQ/2)
= 360*(100/268) + 1*(268/2)
= P268
Problem 4a:
The following information is available for Edgar Corp. Material X(the units of Material X are
required evenly throughout the year):
Annual Usage 12,600 units
Working days per year 360 days
Normal Lead Time 20 days
What is the reorder point?
ROP= NLT x Daily Inventory Consumption= 20 x (12,600/360) = 700 units
Problem 4b:
Assuming that occasionally, the company experience delay in the delivery of Material X, such that
the lead time reaches a maximum of 30 days, how many units of safety stock should the company
maintain and what is the new reorder point?