Karma Company manufactures solar panels.The company's purchasing manager is currently revising the inventory ordering policy for AY-40, one of the components used in the production process.The components are purchased for $0.95 each.The firm uses 50,000 components per year.The accountant estimates that the incremental costs of ordering and receiving AY-40 are $25 per order.The annual cost of storing (carrying) AY-40 is $0.4 per component.

Required:

A) Use the Economic Order Quantity (EOQ) formula to determine the optimal order quantity for AY-40

(2)(annualrequirements)(costperorder)/annualcarringcostperunit

B) How many orders will be placed per year?

C) What is the total annual cost of ordering and storing AY-40 at the economic order quantity?

D) Karma's accountant, Fred Duck, recently attended a seminar on Just-in-Time (JIT) purchasing. Afterwards, he analysed the cost of storing AY-40, including the cost of wasted space and inefficiency. He was surprised to find that the real annual carrying cost was $2 per component.Duck then met with Don Kong, Karma's purchasing manager.Together they contacted the supplier of AY-40 about a JIT purchasing arrangement.After some discussion and negotiation, Kong concluded that the cost of placing an order for AY-40 could be reduced to just $10.

i) Calculate the new EOQ for AY-40

ii) How many orders will be placed per year