Following Is Information Pertaining to Material That Is Used in the Assembly

question 66

Essay

Following is information pertaining to material that is used in the assembly of automobiles:
$\begin{array}{ll}\text { Annual demand } & 4,000 \text { units } \\\text { Unit cost } & \$ 25 \\\text { Cost of placing an order } & \$ 600 \\\text { Carrying cost as a percentage of unit cost } & 10 \%\end{array}$
a.Calculate total annual carrying costs for an order quantity of 200 units per order.
b.Calculate total annual ordering costs for an order quantity of 200 units per order.
c.Determine the optimal order size.

---

Definitions:

Depreciation Expense

The systematic allocation of the cost of a tangible asset over its useful life, reflecting the loss in value as it ages, used for accounting and tax purposes.

Cash Coverage Ratio

A financial metric that measures a company's ability to pay off its debt obligations with its operating cash flow. It is an important indicator of financial health.

Debt-Equity Ratio

A marker indicating the relative financing tactics of using debt and equity in company assets.

Return On Assets

A financial ratio indicating the profitability of a firm relative to its total assets, demonstrating how efficient a company is at using its assets to generate earnings.