Joan W Wrong Supermarket sells one of its products for $250 that includes a mark-up of 25%. The annual cost of holding inventory is 0.5% (1/2%) per annum. For ordering, an employee is paid a rate of $10 per hour to place each order. The product requires 0.05 kilogram of raw material. The company sells 200,000 of this product annually and none is left in inventory at the end of each period. The normal time to place an individual order is five (5) hours. Currently, the company orders five times per year. 

However, management was told that if the orders varied to higher levels, the company stands to benefit from quantity discounts. A discount of 2.5% is to be received for orders of 250 kilograms exceeding the current lot size. While, a discount of 5% is to be received for orders of 500 kilograms exceeding the current lot size and 10% if the current lot size is doubled. The material is currently bought from its supplier for $200 per kilogram 

Required: 

a. Calculate the total cost based on the EOQ. 

b. Calculate the total cost based on the current policy

c. What is the optimal order quantity?

d. Explain three (3) assumptions of EOQ, saying why they are not practical.

Answer rating: 100% (QA)

Solution ad EOG Here A EDB 0 T A 0 Q Solution x1 Annual Ondering C... View the full answer