SECTION A $[40$ MARKS$]$

ANSWER ALL QUESTIONS IN THIS SECTION.

QUESTION $1(20$ Marks$)$

Study the information provided below and answer the following questions.

INFORMATION

Pinnacle Mining Resources $($PMR$)$ uses the economic order quantity $($EOQ$)$ policy as part of its inventory management

system. In this regard, the newly appointed inventory manager at PMR wants to determine the economic order quantity

$($EOQ$)$ for a critical and expensive inventory item that is used in large amounts at a relatively constant rate throughout the

year. PMR pays the supplier R$5000$ for every unit of the inventory item. Currently, PMR uses $450000$ units of the item

annually, has ordering costs of R$375$ per order, and the carrying costs associated with this item are R$28$ per unit per year.

PMR plans to hold safety stock of the item equal to $5$ days of usage, and it estimates that it takes $12$ days to receive an

order of the item once placed. Assume a $365-$day year.

REQUIRED:

$1\mathrm{.}1.$ Calculate the firm$$s Economic Order Quantity $($EOQ$)$ for the item of inventory described above. $(4$ marks$)$

$1\mathrm{.}2.$ Based on the EOQ calculated in part $1\mathrm{.}1,$ determine the total carrying and ordering costs of the item of

inventory.

$(5$ marks$)$

$1\mathrm{.}3.$ What is PMR$$s reorder point for the item of inventory being evaluated? $($Hint: include the safety stock$).(4$ marks$)$

$1\mathrm{.}4.$ The inventory manager at PMR has recently engaged with the supplier of the inventory item due to its

high acquisition cost. The supplier of the inventory item has offered to grant a $5\%$ discount, contingent upon

PMR agreeing to procure $112500$ units of the inventory item quarterly. Given this condition and assuming that

annual ordering and carrying costs remain constant, should PMR$\text{'}$s management accept the supplier$$s offer?