A Firm That Makes Electronic Circuits Has Been Ordering a Certain

question 12

Essay

A firm that makes electronic circuits has been ordering a certain raw material 250 ounces at a time. The firm estimates that carrying cost is 30% per year, and that ordering cost is about $20 per order. The current price of the ingredient is $200 per ounce. The assumptions of the basic EOQ model are thought to apply. For what value of annual demand is their action optimal?

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Definitions:

Accrual-Based Net Income

A measure of a company's financial performance that includes all earned revenues and incurred expenses, regardless of when cash transactions occur, according to the accrual principle.

Operating Income

The income generated from the primary activities of a business, not including the expenses from interest and taxes.

Intra-Entity Transfers

Transactions of assets, services, or funds within the same legal entity.

Accrual-Based Net Income

Net income calculated using the accrual method of accounting, which records revenue when earned and expenses when incurred, regardless of cash flow.