Section B - Case 1: AquaHarvest Ltd
Scenario: AquaHarvest Ltd is a commercial aquaculture firm. Annual demand for their specialized fish feed is 50,000 kg. The cost of placing an order is $200. The holding cost is $0.50 per kg per year. The supplier currently charges $10 per kg but has offered a 2% bulk discount if AquaHarvest orders in quantities of 15,000 kg or more. AquaHarvest's current working capital metrics are: Receivables $400k, Payables $300k, Revenue $4m, Purchases $2m.
Ignoring the bulk discount for a moment, what is the Economic Order Quantity (EOQ) for the fish feed?
ACCA · Question 18 · Working Capital Management
Section B - Case 1: AquaHarvest Ltd
Scenario: AquaHarvest Ltd is a commercial aquaculture firm. Annual demand for their specialized fish feed is 50,000 kg. The cost of placing an order is $200. The holding cost is $0.50 per kg per year. The supplier currently charges $10 per kg but has offered a 2% bulk discount if AquaHarvest orders in quantities of 15,000 kg or more. AquaHarvest's current working capital metrics are: Receivables $400k, Payables $300k, Revenue $4m, Purchases $2m.
AquaHarvest is expanding rapidly and the Finance Director is concerned about 'overtrading'.
Which TWO of the following are classic symptoms of overtrading?
Answer options:
Rapidly increasing sales revenue combined with declining profit margins.
A significant increase in the proportion of long-term debt to equity.
Heavy reliance on short-term debt and a deteriorating current ratio.
Decreasing inventory levels and faster collection of receivables.
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