Lathe plc is a small manufacturing fi rm. It buys in a subcomponent, the Tweak, for £1.50. The cost of insurance and storage per Tweak are £0.40 and £0.50 per item per year, respectively. It costs £25 for each order. The annual quantity purchased is 20,000.

Required:

(i) What is the economic order quantity? Solve this

(a) graphically and

(b) algebraically.

(ii) What are the total costs per annum at this level?