The SAIT Gift Shop purchases sweatshirts emblazoned with the school name and logo from a vendor in Winnipeg. The vendor sells the sweatshirts to the Gift Shop for $34.99 apiece. Shipping from Winnipeg to Calgary costs $110 per order. When an order arrives, it has been estimated that receiving and inspection tasks cost the Gift Shop $25. The annual holding cost for a sweatshirt is calculated as 11% of the purchase cost. The Gift Shop manager estimates that 3100 sweatshirts will be sold during the upcoming academic year.

REQUIRED:

a)Determine the optimal order quantity using the basic EOQ model. (2 Mark)

b)The vendor has recently offered a 3% discount on the purchase price if the Gift Shop orders 500 or more but less than 2000 at a time, and a 5% discount if the Shop orders 2000 or more at a time. Would you take up one of these offers? If so, what is the new optimal order quantity, and if not, why not? Use the same holding cost from part a) throughout this question. (6 Marks)