LEE Company purchases one model of roller skate at sell it at $520 per pairs to its consumers. The annual demand for the companys product is 49,000 pairs. Ordering costs are $500 per order and carrying costs are $100 per pair per year, including $40 in the opportunity cost of holding inventory.

Required:

a. Compute the optimal order quantity using the EOQ model. (3 marks)

b. Compute the number of orders per year and the annual relevant total cost of ordering and carrying inventory. (6 marks)

c. Assume that when evaluating the manager, the company excludes the opportunity cost of carrying inventory. If the manager makes the EOQ decision excluding the opportunity cost of carrying inventory, the relevant carrying cost would be $60, not $100. How would this affect the EOQ amount and the actual annual relevant cost of ordering and carrying inventory? (keep integers when calculating)

(7 marks)

d. What is the cost impact on the company of excluding the opportunity cost of carrying inventory when making EOQ decisions? What could the company do to encourage the manager to make decisions more congruent with the goal of reducing total inventory costs? (4 marks)