A museum on maritime history located in a popular seaside town recently opened up a gift

shop on its premises. However, managing inventories for this museum has become a serious

problem. Inventory turnover is much too low, which squeezes profit margin and causes cash

flow problems. One of the most popular selling items on maritime history at the museum's

gift shop is a hand painted luxury barometer. Sales are 300 units per month, and the supplier

charges $60 per unit. The cost of placing an order with the supplier is $30. Annual holding

costs are 25 percent of a barometer's value, and the museum operates 360 days per year. Lead

time is five days. Management chose a 300-unit lot size so that new orders can be placed less

frequently.

To help management better manage its inventory problem, you are to

a) Calculate the EOQ. (2 marks)

b) How much total annual cost is saved if the EOQ quantity is ordered? (2 marks)

c) What is the optimal number of orders per year? (2 marks)