Problem 1. (35 points) EOQ Inventory Model. A local grocery store sells 250 bags of rice each week. This number has been steady. Each bag of rice costs $2 and the store purchases the bags of rice from a nearby supplier which leads to negligible lead time. The administrative and truck delivery costs add up to $25 per order placed. The stores finance manager calculated the annualized WACC (weighted average cost of capital) for the store as 25%. The store works for 52 weeks a year.

a) (10 points) If the store wants to minimize its inventory costs, how many bags of rice should the store order every time it places an order?

b) (5 points) How many orders should the store place in a year, i.e., frequency of orders?

c) (5 points) What is the total setup costs per year?

d) (5 points) How many bags does the store carry on the average, i.e., average inventory?

e) (5 points) What is the total holding costs per year?

f) (5 points) What is the total annual cost of managing the rice inventory in this store?

NOTE: SHOW ALL YOUR WORK. USE 4 DECIMAL PLACES IN ALL CALCULATIONS.