Open all year round except five days off during certain holidays, a bakery (Pide Inc.) buys flour in 25 kg bags at $50 per bag from a local supplier. Pide uses an average of 50 bags of flour a month. Preparing an order, receiving the shipment, and paying the invoice costs $100 per order. The inventory carrying cost rate is 10%, and the order delivery lead time is 20 days.

1. Currently, Pide places an order every month (call this policy A). Determine the current order size and the total inventory-related operating cost (i.e., the sum of annual ordering and carrying costs) of this policy.

2. Pide wants to assess its current inventory cost and minimize it. Find the least-cost order size (i.e., EOQ) and its corresponding total cost of operating this inventory policy (call this policy B).

3. Calculate the % change in inventory operating costs between policy A and B. Which one would you recommend for Pide to implement, policy A or B? Why?

4. For policy B, first, calculate the reorder point. Then, draw the corresponding inventory-time diagram, and explain how this inventory system operates in two sentences.