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3. Unlirice Company buys and sells (as rice) 7.8 million kilograms of palay annually. The palay must be purchased in multiples of 6,000 tons. Ordering costs, which include grain elevator removal charges of P11,500, are P15,000 per order. Annual carrying costs are 2% of the purchase price of P19.50 per kilogram. The company maintains 600,000 kilograms of palay as safety stock. The delivery time is 4 weeks.

REQUIRED:

A. What is the EOQ?

B. At what inventory level should an order be placed to prevent having to draw on the safety stock?

C. What are the total inventory costs, including the costs of carrying the safety stock?

D. The rice processor agrees to pay the elevator removal charges if Unlirice will purchase palay in quantities of 1,950,000 kg. Would it be to Unlirice's advantage to order under this alternative? Why?