Letter of credit problems steps

Letter of credit problems steps



For Assessing LC Limit we have to take care of following thing .



1.what will be annual purchases.

2.Wht is EOQ-economic order quantity which is calculated by source of supply,means of transport and any discount.

3.Lead time- the time taken in recving the goods after LC opened

4.Transit time if any

5.Usance time- the time to make the payment at any future date accepted by buyer.

Nw he we calculate we hv to convert annual purchases in to months

Then decide whether LC is DA or DP

Da Lc- the LC for which payment is made by the buyer at any future date after its acceptance by him .this is also called usance LC

dP Lc- LC for which the payment is made on production of documents no further time is given.this is also called sight Lc

So It's clear if we talk about dP Lc- we don't count usance time while calcuting total time/LC cycle so it will be Lead time+transit time

If talk Da Lc- it will be Lead time+transit time +usance time

Hw LC limit is calculated on that basis

Monthly purchases*total timing

Total timing will depend on what LC is opened whether do or da

We assume that

-annual consumption of material to b purchased under LC .........C RS.

-Lead time ...L(months)

-transit time...T(months)

-usance period....U(minths/)



Purchase cycle=L+t+u ie.P(months)

LC limit=P*C/12

Why C/12 bcz C is annual purchasing we hv to convert it in months basis while calculating LC limit