Martmass Ltd. expects to sell 27 units, per day, of line item AABK23X in the next financial year (assume 360 trading days in year).

The cost price per unit is R4123.75.

Currently, an average inventory level (A) of 85 units is maintained.

The fixed ordering cost for item LLK23Z is R1950 per order (regardless of quantity).

Other costs currently include:

Opportunity cost: R? (to be calculated)

Annual storage costs per unit: R 247.43 per unit.

Annual inventory insurance cost: R103.09 per unit.

Annual depreciation and obsolescence cost: 10.50% of cost price per unit.

Cost of capital: 18%

Consideration must be given to the lead-time from order to delivery. The lead time is 21 days.

The supplier of line item AABK23X is willing to give a discount of 0.02% on the price if more than 250 units are ordered at a time and a discount of 0.05% if more than 300 units are ordered at a time.

Questions 3.1 Compare the total inventory cost (TIC) of ordering the EOQ with the TIC associated with current average inventory level of Martmass Ltd. Would it be worthwhile to rather order the EOQ? Explain.

3.2 How many orders must be placed annually based on the EOQ?

3.3 Should any of these two discount offers be considered? Explain in detail by comparing it to the TIC costs associated with the EOQ as calculated in question 3.1