25. Cindy\'s Toys has an average cash balance of $18.000 ( C/2) opportunity cost

Question

25. Cindy's Toys has an average cash balance of $18.000 ( C/2) opportunity cost of carrying cash is 5%. Cindy replenishes with $36,000 (-C ) on the first ofeach month and the order cost is $25 (So, total cash needs for the year Cx 12 432000) (i) What are the total carrying (opportunity) costs under the current system? (ii) What are the total replenishment costs under the current system (C)? (iii) By looking at the results from parts (i) and (ii) above, state, in one, very short sentence, whether the firm is replenishing cash balances optimally. If not, find the firms optimal cash replenishment amount(C*). (iv) What are the costs savings (i.e. the difference between the total (carrying and replenishing) costs using the current system and total costs using C? (v)When the firm How frequently would it replenish (every 20 days, or 30 days, etc.,)? replenishes cash optimally, how many times a year would it replenish? nrh nosition is based on the Miller-Orr model. The

Explanation / Answer

As per chegg policy maximum four sub parts of a question can be answered, if you want answer of more sub parts pl. ask it separately on Chegg website

EOQ = SQRT(2 × Quantity × Cost Per Order / Carrying Cost Per unit per year) EOQ Current System Saving Qty A 432000 432000 Cost Per Order B 25 25 Carrying cost per unit per annum C 5% 5% Example Question 3 for EOQ EOQ=SQRT(2X(432000)*25/5%) D                    20,785 36000 (optimal order Amount Average Inventory=20,785/2 D/2                    10,392                   18,000 year Carrying Cost E=D/2*C                          520                         900 No fo orders F=A/C                            21                            12 Total year cost of the order G=F*B                          520                         300 Total year cost H=E+G                      1,039                      1,200            161 No firm is not replenishing cash balance optimallt

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