Lownie Limited uses 7,200 units of material T-95 each year. The material is used evenly throughout the year in the companys production process. A recent cost study indicates that it costs $3.20 to carry one unit in inventory for a year. The company estimates that the cost of placing an order for material T-95 is $45.

On average, it takes 7 days to receive an order from the supplier. Sometimes orders do not arrive for 10 days, and at rare intervals (about 2% of the time) they do not arrive for 12 days. Each unit of material T-95 costs the company $15. Lownie Limited works an average of 360 days per year.

Required: 1. Compute the EOQ.

2-a. What size safety stock would you recommend for material T-95? (Round your answer to 2 decimal places.)

2-b. This part of the question is not part of your Connect assignment.

3. What is the reorder point for material T-95 in units assuming (a) 3-day safety stock, and (b) 5-day safety stock?

4. Compute the total cost associated with ordering and carrying material T-95 in inventory for a year assuming (a) 3-day safety stock, and (b) 5-day safety stock. (Do not include the $30 purchase cost in this computation.)

5. Refer to the original data. Assume that as a result of adopting JIT purchasing policies, the company is able to reduce the cost of placing a purchase order to only $20. Also assume that after considering the waste and inefficiency caused by inventories, the actual cost of carrying one unit of material T-95 in inventory for a year is $6.

a. Compute the new EOQ. (Round your final answer to the nearest whole number.)

b. How frequently would the company place a purchase order, as compared to the old purchasing policy? (Round your answers to 1 decimal place.)