Clarence Clemons' Castle of Chocolate (CCCC) is well known for hand crafting the best chocolate in the province. Clarence makes a variety of different types of chocolate including his famous Freeway of Love milk chocolate saxophones. Sales are growing and it is using about 175 kg of chocolate per day and the store is open 360 days per year. Until now, Clarence has been ordering twice per week (52 weeks/year) but has just learned about something called EOQ that should save some money. The lead time to place an order is 3 days.

He has determined that it takes about hour to place an order and he figures his hourly rate is $40 and has also determined that inventory spoilage is 4% and his interest rate on debt is 9%. Clarence pays $5.50 per kg for his chocolate.

You MUST show your calculations and state the CORRECT UNITS.

Information

OLD METHOD of Inventory Management

1. Under the traditional (old) method, what is the Annual Cost of Placing an order? NOTE: Round number of orders up to the whole number) (2 marks)

1. Under the previous (old) method, what is the annual cost of holding inventory? (2 marks)
2. Under the previous (old) method, what is the total annual cost? (1 mark)

Information on NEW EOQ METHOD

1. Calculate the economic order quantity (EOQ )(2 marks)
2. Using the EOQ, what is the total annual cost of holding and ordering inventory? (2 marks)
3. What is the annual savings by using the EOQ over the previous old method?(1 mark)
4. What is the reorder point? Bonus- 1 mark