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Redwood Limited currently sells a biscuit for $125 which includes a margin of 20%. Each order is placed by a single individual that charges an
Redwood Limited currently sells a biscuit for $125 which includes a margin of 20%. Each order is placed by a single individual that charges an average rate of $20 per hour. To file the paper works as well as to make the necessary telephone calls to the supplier takes an average five hours. While, the cost of holding each unit of inventory is $5 per unit. Currently, the company orders 12,500 biscuits eight (8) times per year. However, management was advised that if the current lot is doubled, the entity stands to benefit from a 3% discount. However, if the order is 2.5 times the current lot size, the company will receive a 6% discount. Lastly if the order is four times the current lot size, a 10% will be given. It is ascertained that all orders are made in a single batch are made instantaneously. Management now wants to know the company's optimal order quantity. Required: (a) Calculate the EOQ based on the formula. (5 marks) (b) Calculate the total cost at EOQ and the current policy. (8 marks) (c) Calculate the total cost for each individual alternate order quantities. (12 marks) (d) Which order quantity is considered the antimal ed
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