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    Cash Cycles: Audi

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    With Audi's manufacturing company's most recent quarterly income statement and balance sheet determine its Cash Cycle.

    EOQ: Lilly's Manufacturing needs fastener supplies to manufacture its products. The CFO estimates that the company will need about 200,000 cases next year. The cost of storing cases is about $0.90. The ordering cost is $500 for a shipment.

    Determine the EOQ.

    How many times will you order?

    What would be the total costs for ordering the cases 1, 6, and 12 times per year?

    What questionable assumptions are being made by the EOQ model?

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    Solution Preview

    Please refer to the attached file for the response.

    EOQ and Cash Cycles
    An online source noted that economic order quantity (EOQ) is computed using the formula:
    EOQ = √ (2ACp / Ch)
    Where A = demand for the year
    Cp = cost to place a single order
    Ch = cost to hold one unit of inventory for a year
    Based on the problem, A = 200,000 units; Cp = $ 500; Ch = $ 0.90
    EOQ = √ (2 * 200,000 * $500/ $ 0.90)
    = √ ($ 200,000,000 / $ 0.90)
    = √ 222222222.22
    EOQ = 14,907 cases; the number of cases to order every time
    an order is placed in order to minimize both ordering and carrying costs.
    At the computed EOQ, how many times are we going to order?
    At a yearly demand of 200,000 and an EOQ of 14, 907 cases, we need to order
    A/Q times = 200,000/14907 = 13 times
    Cost to be incurred if we order once, 6X, 12 X a year:
    a) Once a year; this means ordering all the needed number of cases for a year once - possibly at the start of a given year:
    A formula given by an online source may ...

    Solution Summary

    The expert examines the cash cycles for Audi.