You are the Finance Manager of DiCaprio Ltd, a company selling treadmills. The company used to have 7 outlets in various shopping malls located in different parts of Singapore. 2 outlets were closed in 2021.

Question 1

The CEO of DiCaprio was pleased to announce during a meeting after the end of the financial year 2021 the following highlights of the company’s financial information:

• Total sales increased by 5%
• Accounts Payable Payment Period is shortened
• CapitaLand provided rental rebates to tenants for several months

However, as the Financial Manager, you know that despite the increase in sales in 2021, gross profit margin declined by 3% and net profit was still very low compared to a pre-pandemic margin of 15%. The cash position of the company is also not optimistic. Some additional information can be found below:

• Card companies  charge the company a 1% transaction fee for online payment
• Delivery is free for customers’ online purchases above $60, and DiCaprio engages delivery company Ninja Van to ensure prompt delivery
• Most of the sports and leisure equipment sold is imported from overseas.

Question 2

DiCaprio expects to sell 5,000 treadmills in the year 2022.  It costs $5 to store each treadmill in a storage facility for a year and $10 to administer each order from its supplier. DiCaprio operates 360 days a year. The company wants to avoid running out of stock and would like to keep a safety stock of 32 treadmills.

• Calculate the following:

(i) the optimal quantity DICAPRIO should order in order to minimize the total costs of holding inventory, and

(ii) the reorder point in units if the supplier requires 4 days lead time to deliver an order Show your workings clearly.