Bad Dawg produces pork sausages annually which requires 0.2 kilogram of raw material. The company produces and sells 800,000 units of the product annually. The cost to place a single order is $30 per hour and the annual carrying cost of inventoryis 4% per annum.The normal time to place an individual order is four (4) hours. Currently, the company orders ten times per year.

The main supplier has advised the financial controller of Bad Dawg that a 6% discount would be given if the entity doubles its current lot size. Management was also informed that a further 4% would be given if the entity increased its order by 8,000 kilograms above the current lot size. The material is currently bought from its supplier for $60 per kilogram.

Required:

a.Calculate the Economic Order Quantity (EOQ).(3 marks)

b.Calculate the total cost based on the EOQ.(2 marks)

c.Calculate the total cost for each individual alternate order quantities,including the current policy.(6 marks)

d.What is the optimal order quantity and why?(1 marks)\

e.Outline three importance of inventory management.(3 marks)