Pastry Passions is the main supplier of cheesecake cupcakes and other assortments to customers in Kingston, Jamaica. The company currently makes 250,000,000 products annually which uses confectionary flour. Production is undertaken evenly throughout the year. Each product uses 0.00025 kilogram of confectionary flour. Pastry Passions sells one cheesecake cupcake for $350 each which includes amark-upof 25%. The company currently makes ten (10) equal orders per year and all orders are made instantaneously.

The main supplier of the flour has approached our operations manager to inform him that if the company moves away from the current policy, the company could receive discounts. A 3% discount was proposed if orders are 1.6 times the current lot size, 5% discount for orders twice the current lot size and 8% discount for orders 2.5 times the current lot size. It is also expected that orders will be made instantaneously and there will be no lead time between ordering and receiving the raw material.No discounts are given for orders less than the current lot size.

It was further noted that one employee is responsible to place all orders and is paid $250 per hour for 5 hours. The cost of storing is to be $25 per unit of average stock. The current unit cost of the flour is 50% of the cost price of the cheesecake cupcake.

Required:

(a)Calculate the EOQ based on the formula.[2 marks]

(b)Calculate the total cost based on the EOQ and the current policy.[5 marks]

(c)Calculate the total cost for each discounted alternative.[7 marks]

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