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Inventory Management, Just-in-Time, and Simplified Costing Methods Question 1 a. Using an example, explain the concepts of purchasing costs, ordering costs and carrying costs. (3 marks) Mahmud Company produces cycles and purchases 40,000 units of seat covers each year at a cost of $2 per unit. Mahmud Company requires a 7.50% annual rate of return on investment. In addition, the relevant carrying cost (for insurance, materials handling, breakage, etc.) is $0.34 per unit per year. The relevant ordering cost per purchase order is $19.20. Required: b. Calculate Mahmud Company's EOQ for the seat covers. (1 marks) c. Calculate Mahmud Company's annual relevant ordering costs for the EOQ calculated in requirement 1. (2 marks) d. Calculate Mahmud Company's annual relevant carrying costs for the EOQ calculated in requirement 1. (2 marks) e. Assume that demand is uniform throughout the year and known with certainty so there is no need for safety stocks. The purchase-order lead time is half a month. Calculate reorder point for the seat covers. (2 marks) Page 1 of 5