Sapura TEL Sdn. Bhd. is a company selling deluxe cordless telephone. It sells the telephone for RM79.95 which costs RM40 each. Last year the company sold 85000 units. The supplier of the telephone is its subsidiary Sapura COM Sdn. Bhd. which recently announced a price increase of RM5. This will force Sapura Tel to increase the selling price to RM84.95 but anticipate that the demand for the telephone for this coming year to decline by 10 percent. It costs Sapura TEL RM400 to place an order and the carrying costs of the deluxe telephone are 12% of costs.

The supplier has also indicated that due to increase in processing costs, it will accept orders only in round lots of 1000 units at the quoted price of RM45. An additional charge of RM50 per order is made on any fractional order.

REQUIRED:

1. Compute the economic order quantity
2. Compute the total costs of inventory if the EOQ is ordered
3. Compute the total costs of inventory if each order is rounded to the nearest round lot of 1000 units.

Rounded lot 3366.5 = 3000 units

4. What order size should the company place?