QUESTION 3 ABC Ltd, a car manufacturer, aims to produce and sell high-quality cars at reasonable prices but is currently concerned about the storage cost of an engine-related part called UK10, which includes insurance, interest, and space cost. This automotive part is purchased from an outsider supplier semi-annually. The data related to UK10 are as follows. annual usage quantity minimum order quantity cost per unit 12,000 units 1,000 units 3 UK10 is replenished instantly and depleted evenly throughout the year. On average, half of the amount purchased is held in inventory. The cost of storage is 20% of the purchase price. The cost of placing and receiving an order is estimated at 20 per order. REQUIRED: Please note: a maximum word count applies to some parts of this question. (a) What is the primary goal of adopting the economic order quantity (EOQ) system? (3 marks; max 105 words) Define the formula for EOQ and explain why EOQ increases with the cost of ordering while decreases with the cost of holding inventory. (9 marks; max 315 words) The EOQ calculation is based on several assumptions (e.g., perfect prediction of future demand). Using examples, explain three factors that companies should consider in order to mitigate the potential limitation of this quantitative formula. (9 marks; max 315 words) (b) You are required to: (i) Tabulate the costs of holding and ordering UK10 for each level of orders from one to twelve placed per year. (12 marks) (ii) Based on the analysis conducted in (b) (i), identify the number of orders and the order quantity that would minimise the costs of holding and ordering UK10. (2 marks) (iii) Calculate the economic order quantity of UK10 using the EOQ formula, and compare the result with the one in (b) (ii). (2 marks) Discuss whether the economic order quantity derived from the formula is a feasible option for this company. (2 marks; max 70 words) (iv) Calculate the percentage saving on the annual cost, which could be made using the economic order quantity derived from the tabulation method (i.e., (b) (ii)) (2 marks) (v) Suggest two approaches that could be introduced to reduce the present cost of ordering UK10. (4 marks; max 140 words) (c) Discuss why some firms prefer the just-in-time (JIT) philosophy, whereas others adopt the EOQ system. (2 marks; max 70 words) Which strategy (i.e., JIT or EOQ) would you recommend to this company and why? (3 marks; max 105 words)