QUESTION3(20MARKS)

1. SnowCandySdnBhdproducesJumboAlmondChocolate.Themanagementrecognizes the need to maintain an efficient stock procurement and stock controlsystem to avoid stock out or excess stock problem. The production of Jumbo AlmondChocolate is between 200 to 500 units of chocolate bar per week. Each bar of JumboAlmond Chocolate requires 500 grams of cocoa powder. Currently, the company'sreorderquantityis800kgsofcocoapowderforeachpurchaseandtheleadtimevariesbetween1to3 weeks.

Required:

Computethefollowingstocklevelsforcocoapowder(inkilograms).

a. Reorderlevel

b. Maximumstocklevel

c. Minimumstock level

(8marks)

2. Secret Cake House concernsabout the inventory level of the main ingredientinproducingcakesthatiscakeflourasthepriceofthecakeflourkeepsincreasingduetoinflation. The cake flour is currently ordered in quantities of 200 kgs per order at a costof RM5.00 per kg. In order to produce a cake, 0.5 kg of cake flour is required. Thedemand for the cake is constant at 2,000 units every year. In preparing the order, thecompanyincurredRM125forfreightcostperorder.Immediatelyafterreceivingthecakeflour,SecretCakeHouseinsuredthecakeflourat4%oftheinventoryvalueinordertoavoid extra cost of damaged cake flour in its storage house. The storage cost for thecakeflourisRM0.80perkg.

Required:

a. ComputetheEconomicOrderQuantity(EOQ)forthecakeflour.

b. Computethetotalcostsifthecompanyordersthematerials atEOQ.

c. Explaintwo(2)assumptions ofEOQ.

(12marks)