Mega Value's main product is the sugar lollipop. Each item is sold for $800 with a profit margin of 25% each. The company orders 450,000 units quarterly and management wants to know the optimal order quantity. To place each order, the entity designates a single employee who is paid at a rate of $50 per hour which takes a maximum of five hours. The cost of holding each unit of inventory is $4.

Management was advised by the supplier that a 2.5% discount will be given if the company doubles its current lot size. On the other hand, a 5% discount will be granted for two and a half times the current lot size and a 10% discount if the order size is four times the amount.

Required:

a) Calculate the EOQ based on the formula.

(3 marks)

b) Calculate the total cost based on the EOQ.

(4 marks)

c) Calculate the total cost for each individual alternate order quantity including the current policy.

(16 marks)

d) Which order quantity is considered the optimal order quantity and why?

(2 marks)