One Stop manufactures a special corn bread, which requires 0.002 lbs of wheat per unit. The company requires wheat to produce 120 million units of corn bread annually. The product is sold for $300 which includes a 20% mark-up by management. The cost of planning and placing an order is $40 per hour which usually takes 4 hours. The annual holding cost is 5% of unit cost of the wheat, and the purchase cost of the wheat is 60% of the cost of making the product.

Currently, the entity orders forty times per year. However, management was advised that if the current lot size was doubled, the entity would receive a discount of 3%. If the current lot size was four times more a discount of 5% would be granted, meanwhile a 7% discount would be offered for increasing the current lot size by five times.

Required:

Calculate the economic order quantity (EOQ). (4 marks)

Calculate the total cost of the raw material at EOQ and the current policy. (4 marks)

Calculate the total cost for the alternative order policies. (16 marks)

Indicate to management the optimal order quantity. (1 mark)