QUESTION 3 (11 marks) DMX Ltd (DMX) expects an annual demand of 120 000 units for product Y. Product Y is purchased from a supplier at R20 per unit. The cost of placing an order is R2 per order. Due to the uncertain demand for product Y, DMX maintains a safety stock level of 1 500 units for product Y. The storage cost for product Y is 25% of the purchase price. Lead Time:

The lead time for orders can vary between 10 to 15 days. Average Lead Time: The average lead time is 13 days. Units Sold Per Day: Daily sales can range from 200 units to 300 units. Average Daily Sales: On average, 250 units are sold per day.

REQUIRED:

Calculate the following:

3.1 The Economic Order Quantity (EOQ). (3 marks)

3.2 The annual ordering costs and annual holding costs (3 marks) 3.3

Minimum inventory in units. (3 marks)

3.4 Maximum inventory in units. Assume the EOQ is 1000 units. (2 marks)