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 20 · 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 considering moving to a Just-in-Time (JIT) inventory system for its fish feed to reduce holding costs to near zero.
Which of the following is the most significant risk of implementing JIT in this specific agricultural context?
Answer options:
Increased holding costs due to the need for specialized storage facilities.
Supply chain disruptions could lead to immediate stockouts, resulting in livestock starvation and massive revenue loss.
The inability to take advantage of early settlement discounts from suppliers.
A decrease in the quality of the fish feed due to frequent ordering.
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