QUESTION $4-$ INVENTORY MANAGEMENT $-25$ marks

A$).$ Explain the concept of ABC analysis with an example. $-4$ marks

B$).$ Maxi department store sells $175$ units per month of a certain large bath towel. The unit cost of a towel to the store is $$2\mathrm{.}50$ and the cost of placing an order has been estimated to be $$12\mathrm{.}00.$ The store uses an inventory carrying charge of $I=27\%$ per year. Determine $($a$)$ the optimal order quantity, $($b$)$ the order frequency, and $($c$)$ the annual holding and setup cost. If$,$ through automation of the purchasing process, the ordering cost can be cut to $$4\mathrm{.}00,$ what will be $($d$)$ the new economic order quantity, $($e$)$ the order frequency, and $($ f $)$ annual holding and setup costs? Explain these results. marks