Palmer Bhd. markets tennis balls to various clients throughout Malaysia. The company is reviewing its purchasing policy. It expects to sell 750,000 tennis balls next year. A 3-Ball can have a selling price of RM29.75 and is purchased for RM8.25 per ball. The company places an order for 187,500 tennis balls at regular intervals throughout the year. Storage and other carrying cost are estimated at RM0.05 per ball. Ordering cost is RM235 per order. The company maintains a safety (buffer) stock which is sufficient to meet demand for 20 working days and the delivery time is 14 days based on a 365-day year. The demand for such balls per year is about 250,000 3-Ball cans.

Required:

1. Calculate the reordering level.

(4 Marks)

2. Calculate the annual cost of the current ordering policy.

(9 Marks)

3. Calculate the annual cost of the economic order quantity model policy.

(9 Marks)

4. What order size should the company place?

(3 Marks)