Case Study 8-2 McMillan

Oil & Propane, LLC

Note: Show all work and calculations. The use of Microsoft Excel
software is required.
Case Study 8-2: McMillan Oil & Propane, LLC

Rob McMillan finished reading the article in the local paper, Fuel Prices
Expected to Increase into Summer. The article cited major factors in the
crude oil spike such as Irans nuclear program and overall Mideast instability.
Rob, an independent fuel oil and propane distributor in rural Virginia,
thought this wasnt good news. It had been a moderate winter, but
wholesale fuel prices were higher than normal. Rob grabbed the last invoice
from his supplier and saw that fuel oil was priced at $1.964 per gallon, with
trade discounts of 7/5/2.5 available. It seemed like those discounts were not
as good as in the past. McMillan Oil offers its own customers credit terms of
2/15, net/30, with a 1% service charge on late payments. Of the $25,000 in
average fuel oil sales per month, normally half of Robs sales are paid within
the discount period, and only 5% incur the monthly service charge. Rob is
concerned because a number of his fuel oil customers are behind in their
payments, and he is considering some changes.
1.

Using the starting price of $3.353 per gallon, what is Robs net price
after applying the 7/5/2.5 trade discount series using the net decimal
equivalent?
2. Rob is considering purchasing his fuel oil from a new supplier offering
fuel oil at $3.561 per gallon, but with a better trade discount series of
10/7/4. Compared to your answers in Exercise 1, which supplier would be a
better deal for his company?
3. Using the average monthly sales of $25,000, what is the total savings
enjoyed by those fuel oil customers who normally pay within the discount
period? What is the total penalty paid by those that are delinquent over 30
days?

4.

Currently, only 25% of the sales volume is paid by customers who are
taking advantage of the discount, and 20% of the sales are over 30 days.
Using these figures, how does that change your results from Exercise 3
above? Because your answers show that Rob is presently making more
money (at least he should), why should he be concerned about the current
situation? What suggestions do you have?
Link: https://tutorsof.wordpress.com/2016/07/02/case-study-8-2mcmillan-oil-propane-llc/