Question
Silver Corporation manufactures the product XYZ. Each unit requires 10 grams of copper. The entity sells 10,000 units annually. The company purchases the material for
Silver Corporation manufactures the product XYZ. Each unit requires 10 grams of copper. The entity sells 10,000 units annually. The company purchases the material for $200 per gram. The cost of planning and placing an order is $20 per hour, which usually takes 5 hours. The annual holding cost is $5. Currently, the entity orders twenty times per year. However, management was advised that if the current lot size were doubled, the entity would receive a discount of 2% %. If the current lot size were four times more, a discount of 5% would be granted. Meanwhile, a 10% discount would be offered for increasing the current lot size by five times. Required: (a) Calculate the economic order quantity (EOQ). (5 marks) (b) Calculate the total cost for the alternative order policy (including the current lot size and EOQ). (10 marks) (c) Indicate to management the optimal order quantity. (1 mark)
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