Question

Video Images is a distributor of DVDs.​ Quick-Disk Mart is a local retail outlet which sells blank and recorded DVDs.​ Quick-Disk Mart purchases tapes from Video Images at​ $3.00 per DVD. DVDs are shipped in packages of 20. Video Images pays all incoming​ freight, and​ Quick-Disk Mart does not inspect the DVDs due to Video Images reputation for high quality. Annual demand is​ 104,000 DVDs at a rate of​ 4,000 DVDs per week.​ Quick-Disk Mart earns​ 20% on its cash investments. The​ purchase-order lead time is two weeks. The following cost data are​ available: Relevant ordering costs per purchase order ​$90.50 Carrying costs per package per​ year: Relevant​ insurance, materials​ handling, ​ breakage, etc., per year ​ $ 4.50 What is the required annual return on investment per​ package? A. ​$12.00 B. ​$2.50 C. ​$60.00 D. ​$0.60

Answer 1

Answer:

option (A) $12.00

Explanation:

Data provided:

Quick-Disk Mart purchase tapes from Video Images at​ price = $3.00 per DVD

Number of packages shipped = 20

Returns earned = 20% of the cash investments

Now,

the total investment per package = $3.00 × 20 = $60.00

Thus,

the return on investment per package

= 0.20 ×  total investment per package

or

the return on investment per package = 0.20 × $60.00

or

the the return on investment per package = $12.00

Hence, the correct answer is option (A) $12.00