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Copperwood Limited currently sells a biscuit for $625 which includes a margin of 20%. Each order is placed by a single individual that charges an
Copperwood Limited currently sells a biscuit for $625 which includes a margin of 20%. Each order is placed by a single individual that charges an average rate of $100 per hour. To file the paper works as well as to make the necessary telephone calls to the supplier takes an average of five hours. While, the cost of holding each unit of inventory is $25 per unit. Currently, the company orders 25,000 biscuits quarterly. However, management was advised that if the order lot is doubled, the entity stands to benefit from a 2.5% discount. However, if the current lot size is tripled; the company receives a 5% discount. Meanwhile, a 10% discount is to be received if management purchases four times the current lot size. It is ascertained that all orders are made in a single batch are made instantaneously. Management now wants to know the company's optimal order quantity. Required: (a) Calculate the EOQ based on the formula. marks) (3 (b) Calculate the total cost based on the EOQ. (2 marks) (c) Calculate the total cost for each individual alternate order quantities including the current policy. (8 marks) (d) Which order quantity is considered the optimal order quantity and why? (1 marks) (e) List and briefly explain the three inventory control levels. marks) (3
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