Armidale Distributors Is a Distributor of DVDs What Is the Required Dollar Annual Return on Investment Per

question 47

Multiple Choice

Armidale Distributors is a distributor of DVDs.El Cheapo Electronics is a local retail outlet which sells blank and recorded DVDs.El Cheapo Electronics purchases DVDs from Armidale Distributors at $0.50 per DVD;DVDs are shipped in packages of 100.Armidale Distributors pays all incoming freight,and El Cheapo Electronics does not inspect the DVDs due to Armidale Distributors' reputation for high quality.Annual demand is 104 000 DVDs at a rate of 2000 DVDs per week.El Cheapo Electronics earns 20% on its cash investments.The purchase-order lead time is two weeks.The following cost data are available:
$\begin{array}{llr} \text {Relevant ordering costs per purchase order } &\$ 45.50\\ \text { Carrying costs per package per year: } &\\ \text { Relevant insurance, materials handling,} &\\ \text { breakage, etc, per year } &\$ 2.50\\\end{array}$

What is the required dollar annual return on investment per package?

• A)$2.50
• B)$50.00
• C)$10.00
• D)$0.50

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Definitions:

Corporate Groups

A collection of parent and subsidiary companies that function as a single economic entity through a common source of control.

Indirect Ownership Interests

Ownership in a company that is not held directly by the owner but through a chain of intermediary entities.

Sequential Consolidation Method

A process in accounting where the financial results of subsidiary companies are consolidated with the parent company's financial statements one after another, usually in the order of acquisition.