Toronto’s Roma Pizzeria sells a variety of pizzas. e largest inventory item held by Roma is cheese. e owner has approaed you for advice in connection with the size of orders that should be placed when ordering cheese. You have ascertained the following:

• Cheese is ordered in blos at $20 per block.

• Roma currently places an order with its cheese supplier every two weeks and the average order size is 500 blos. Roma has a policy of timing its cheese reordering so that its inventory of cheese has declined to 40 blos when the new shipment arrives.

• Money not invested in inventory could be invested in a bank account to earn Roma 5 per cent per annum.

• the cheese is shipped in refrigerated transport and the cost of ordering, shipping and receiving a shipment is $30.

Required:

a) What is the Roma’s EOQ for cheese? Assume 52 weeks in a year.

b) What is the sum of Roma’s current cheese carrying and ordering costs?
Assume 52 weeks in a year.

c) What would Roma save in total carrying and ordering costs if it changed its order size to the most economic order quantity (EOQ).