Since the total cost under quarterly supply of 1,500 units with 5 per cent discount is lower than when order size is 102 units, the offer should be accepted. While accepting this offer, consideration of capital blocked on order size of 1,500 units per quarter has been ignored. 2. Maximum level of stock - Reorder level+Reorder quantity -- Minimum usage X Minimum reorder period) y28 - 1,600 units + 102 units - (50 units X 6 weeks) - 1,402 units 3. Maximum level of stock - Reorder level(Normal usage X Average reorder period) - 1,600 units(100 units X 7 weeks) - 900 units 4. Reorder level - Maximum consumption X Maximum reorder period - 200 units X 8 weeks - 1,600 units. P.8.10 IPL Limited uses a small casting in one of its finished products. The castings are purchased from a foundry. IP. Limited purchases 54,000 castings per year at a cost of 7800 per casting The castings are used evenly throughout the year in the production process on a 360-day-per-year basis. The company estimates that it costs 19,000 to place a single purchase order and about 300 to carry one casting in inventory for a year. The high carrying costs result from the need to keep the cast- ings in carefully controlled temperature and humidity conditions, and from the high cost of insurance. Delivery from the foundry generally takes 6 days, but it can take as much as 10 days. The days of delivery time and percentage of their occurrence are shown in the following tabulation: Delivery time (days) 6 7 8 10 Percentage of occurrence 75 10 5 5 REQUIRED: (1) Compute the economic order quantity (EOQ). (11) Assume the company is willing to as sume a 15 per cent risk of being out of stock. What would be the safety stock? The re-order point? (111) Assume the company is willing to assume a 5 per cent risk of being out of stock. What would be the safety stock? The re-order point? (iv) Assume 5 per cent stock-out risk. What would be the total cost of ordering and carrying inventory for one year? (v) Refer to the original data. Assume that using process re-engineering the company reduces its cost of placing a purchase order to only 2600. In addition, the company estimates that when the waste and inefficiency caused by inventories are considered, the true cost of carrying a unit in stock is 720 per year (a) Compute the new EOQ. (b) How frequently would the company be placing an order, as compared to the old purchasing policy