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A firm wishes to minimize annual inventory costs. The firm uses the EOQ model to determine the cost-minimizing order quantity and the reorder point. Annual

    A firm wishes to minimize annual inventory costs. The firm uses the EOQ model to determine the cost-minimizing order quantity and the reorder point.

    Annual demand, units

    22,100

    Item cost, $ per unit

    3.2

    Ordering cost, $ per unit

    12

    Holding cost, annual rate

    0.10

    Operating days per year

    365

    Lead time, days

    6

    The firm will receive a 20 percent reduction in the cost of the item (lowered to $3.20 per unit) if the order quantity is at least 2,000 units. Should the firm accept the offer?

    1) What is the annual inventory cost? (Round your answer to 2 decimal places).

    2) What is the reorder point? (Round your answer to 2 decimal places).

    3) Comparing your answer to Problem 1, should the firm accept the offer?

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