Posted: December 2nd, 2020

Millbridge Hospital buys its supplies in bulk and has recently switched vendors

7-29. Millbridge Hospital buys its supplies in bulk and has recently switched vendors. The first purchase Millbridge made was for 500 boxes of gauze at $3.46 a box. The purchase had payment terms of 2/15 N/30. Millbridge earns 4 percent on its idle cash. Should it take the discount or not? Justify your answer by showing calculations.7-30. Meals for the Homeless usually experiences seasonality in its cash balances. In December, contributions from donors increase its cash balances, and then these balances are used throughout the following year. By the fall, Meals for the Homeless has a tight cash flow. It has a line of credit with its bank, which allows it to draw up to $500,000 at 7 percent interest per year. During 2013, Meals for the Homeless draws down $135,000 on October 1 and repays it at the start of business on January 3, 2014 – exactly 94 days later. How much should it pay back on January 3, and how much of it is interest?7-31. Meals for the Homeless has many sources of income, but they pay Meals very differently. Specifically, Meals has contracts with the city, county, and state to provide food services. In addition, Meals has contracted with a private foundation to augment its foods with more healthful options. The city owes Meals $400,000, half of which is current, on-quarter is more than 30 days but less than 61 days, 15 percent is between 61 and 90 days old, and the remainder is more than 91 days old. The county owes Meals $900,000, only one-third of which is current, another one-third is more than 30 days but less than 61 days old, and the remainder is more than 90 days old. The state owes Meals $1.5 million, 40 percent is current, 30 percent is between 30 and 60 days old, 20 percent is between 61 and 90 days old, and the remainder is more than 91 days old. The foundation owes Meals $150,000, of which half is current and the other half is more than 30 days old but less than 61 days. Prepare an accounts-receivable aging schedule for Meals by total dollars and by percent.7-32. Millbridge Hospital receives earned income from several sources: Medicare, Medicaid, private insurance, and self-pay customers. The federal government owes the hospital $7 million, 60 percent is current, 30 percent is between 31 and 60 days old, and the remaining 10 percent is between 61 and 90 days old. The state owes the hospital $5 million for Medicaid, 40 percent of which is current, 30 percent is between 31 and 60 days old, 20 percent is between 61 and 90 days old, and the remainder is more than 91 days old. Private insurance owes the hospital $4 million, half of which is current, 25 percent is between 31 and 60 days, and the remaining 25 percent is more than 91 days old. Self-pay customers owe $1 million, 30 percent is current, 40 percent is 31 to 60 days old, 10 percent is 61 to 90 days old, and the remainder is more than 91 days old. Prepare an accounts-receivable aging schedule by total dollars and by percent.7-33. Millbridge Hospital buys 10,000 boxes of latex gloves every year. Each box costs the hospital $7. The cost to place an order for the gloves – which covers the employee staff time, shipping costs, the hospital’s receiving center for inventorying, for example – is estimated at $50 per order. Carrying costs (for storing the boxes, verifying the inventory periodically, etc.) are estimated at 50 cents per box per year. Millbridge uses a 6 percent interest-cost assumption in its calculations. How many boxes should be ordered at a time? How many orders per year should there be? What are the total ordering and carrying costs at the EOQ? Contrast these costs at the EOQ to the total costs if all boxes were simply ordered at the start of the year.

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