Question 3 (answer all parts) (Total 30 marks) Inventory Management Company A is a European company that sells goods solely within the EU. Its current policy is that an order of 50,000 units would be placed when the inventory level falls to 17,500 units. The cost of placing and processing an order is 240. The cost of holding a unit in store is 0.50 per unit per year. Orders are received two weeks after placing the order. The demand for next year is expected to be 320,000 units. You should assume a 50 -week year and that demand is constant throughout the year. (a) Calculate the cost of the current ordering policy and determine the saving that could be made by using the economic order quantity model. (15 marks) Trade receivables management Company B, a US based company, has an annual turnover of $4,000,000. The company employs four people in its sales ledger and credit control department at an annual salary of $25,000 each. All sales are on 40 days' credit with no discount for early payment. Bad debts represent 3% of turnover and Company B pays annual interest of 9% on its overdraft. Company B is considering offering a discount of 1% to customers paying within 14 days, which it believes will reduce bad debts to 2.4%. The company also expects that offering a discount for early payment will reduce the average credit period taken by its customers to 26 days. The consequent reduction in the time spent chasing customers where payments are overdue will allow one member of the credit control team to take early retirement. Two-third of customers are expected to take advantage of the discount. (b) Suppose there are $550,000 trade receivables outstanding at the end of this year. Determine if a discount for early payment of 1% will lead to an increase in profitability for Company B. (15 marks)