Materazzi Bedding Ltd has determined the following inventory information and relationships:

(i)Orders can be placed only in multiples of 200 units.

(ii)Annual unit usage is 500,000 units. (Assume a 50 week year in your calculations.)

(iii)The carrying cost is 10% of the purchase price of the goods per year.

(iv)The purchase price is $5 per unit.

(v)The ordering cost is $100 per order.

(vi)The desired safety stock is 5,000 units. (This does not include delivery time stock.)

(vii) Delivery time is four weeks.

Required:

a What is the EOQ level?

b How many orders will be placed annually?

c At what inventory level should a reorder be made?

d What is the average level of inventory held?

e Now assume that the carrying costs are 50% of the purchase price of the

goods and recalculate the EOQ. Explain why the EOQ is different from part a above.

f What measures can Materazzi Bedding take to try and decrease the total cost of

inventory?