Rally Communications Company manufactures glass fibres used in the communications industry. The companys materials and parts manager is currently revising the inventory ordering policy for XL-20, one of the chemicals used in the production process. The chemical is purchased in 10-kilogram canisters for $95 each. The firm uses 4,100 canisters per year. The accountant estimates that the incremental costs of ordering and receiving XL-20 are $143 per order. The annual cost of storing XL-20 is $3.30 per canister.

Required:

1.	Use the EOQ formula to determine the optimal order quantity for XL-20.(Round your answer to the nearest whole number.)

Economic order quantity

2.	What is the total annual cost of ordering and storing XL-20 at the economic order quantity?(Do not round intermediate calculations. Round your answer to 2 decimal places.)

Total annual cost of ordering and storing

$

3.	How many orders will be placed per year?(Do not round intermediate calculations. Round your answer to the nearest whole number.)

Number of orders per year

4.

Rallys accountant, Frank Mallard, recently attended a seminar on JIT purchasing. Afterwards, he analysed the cost of storing XL-20, including the cost of wasted space and inefficiency. He was shocked to find that the real annual carrying cost was $20 per canister. Mallard then met with Doug Kaplan, Rallys purchasing manager. Together they contacted Chemical Industries, the supplier of XL-20, about a JIT purchasing arrangement. After some discussion and negotiation, Kaplan concluded that the cost of placing an order for XL-20 could be reduced to just $37.

a.	Calculate the new EOQ for XL-20.(Do not round intermediate calculations. Round your answer to the nearest whole number.)

Economic order quantity

b.	How many orders will be placed per year?(Do not round intermediate calculations. Round your answer to the nearest whole number.)

Number of orders per year