M Q3

Farmfresh sells 750 units per month of watermelon. The unit cost of a watermelon to the store is Rs. 11 and the cost of placing an order is Rs.64. Farmfresh uses an inventory carrying charge of 15% per year. Determine the optimal order quantity, order frequency, and the annual cost of inventory management. If, through automation of the purchasing process, the ordering cost can be cut to Rs.28, what will be the new economic order quantity, order frequency, and annual inventory management cost? Explain these results. [5]