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A local artisan uses supplies purchased from an overseas supplier. The owner believes the assumptions of the EOQ model are met reasonably well. Minimisation of

A local artisan uses supplies purchased from an overseas supplier. The owner believes the assumptions of the EOQ model are met reasonably well. Minimisation of inventory costs is her objective. Relevant data, from the files of the craft firm, are annual demand 150 units, ordering cost $42 per order, and holding (or carrying) cost $4 per unit per year.

(a) How many should she order at one time to optimise the total cost?

(b) How many times per year will she replenish its inventory of this material?

(c) What will be the total annual inventory costs associated with this material?

(d) If she discovered that the carrying cost had been overstated, and was in reality only $1 per unit per year, what is the corrected value of EOQ?

(e) Assume the number of working days in a year is 300. If the order lead time is 20 days, then calculate reorder point of this material.

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