Question 3

The Arizona Company manufactures cactus candy. The company buys sugar used in the candy in 10kg boxes that cost 10 each. The company uses 60 000 boxes per year, and usage occurs evenly throughout the year.

The average cost to carry a 10kg box in inventory per year is 6, and the cost to place an order is 4.

Required:

(a) Determine the economic order quantity for the sugar in terms of 10kg boxes. Explain

the concepts used in the calculations.

(b) If the company works 250 days per year, on the average, how many boxes of sugar are used per working day? Discussis.