A computer firm orders displays from a local distributor. The price per unit charged by the distributor depends on the number of displays purchased as shown in the Table of Q6. The computer firm uses 1,000 displays per year. The cost of placing an order is assumed to be 100. The only holding cost is the opportunity cost of capital, which is taken as 20% per year. Table of Q6 No. of displays ordered Price per unit Oss 100 50 100 sq s 300 49 q 2 300 48.50 (a) Each time an order is placed, how many displays should be ordered to minimise the total annual cost? (b) What is the total annual cost of meeting the computer firm's displays needs? (c) How many orders will be placed annually? Basic Economic Order Quantity Economic Order Quantity Formula Sheet Total annual cost 2KD TC(9) q' = h --- for 9 KD + PD 9 ha + 2 When h given in Terms of Pound Value of Inventory q* = 2KD pha Continuous-Rate EOQ model r Optimum run size = q*. r-D EOQ model with Back Orders Total annual cost using parameters and M M2h TC(G,M) (9-M)?s KD + a 29 29 h + s Optimum order quantity size = 2KD(h+s) = q* hs S S Optimum maximized inventory level = 2KDs h(h + s) 9 h+s Maximum shortage = Optimum order quantity size - Optimum maximized inventory level Using EOQ models i=n i=n Estimate for average demand per period d di Estimate of the variance of the per-period demand Est. var D d? - d2 ? - n (= 1 i=1 Estimate of the relative variability demand est. var D VC= d2 of