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Singapore Communications Company manufactures glass fibres used in the communications industry. The company's materials and parts manager is currently revising the inventory ordering policy for

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Singapore Communications Company manufactures glass fibres used in the communications industry. The company's 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 4,800 canisters per year. The accountant estimates that the incremental costs of ordering and receiving XL-20 are $150 per order. The annual cost of storing XL-20 is $4 per canister. Required: a) Use the EOQ formula to determine the optimal order quantity for XL-20. (4 marks) b) What is the total annual cost of ordering and storing XL-20 at the economic order quantity? (3 marks) c) How many orders will be placed per year? (2 marks) d) Singapore's accountant, James, 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 cost was $20 per canister. James met with Dominique, Singapore's purchasing manager. Together they contacted Chemical Industries, the supplier of XL-20, about a JIT purchasing arrangement. After some discussion and negotiation, Dominique concluded that the cost of placing an order for XL-20 could be reduced to just $30. Calculate the new EOQ for XL-20. (3 marks) e) Is the EOQ model an effective method of managing the costs associated with goods for sale? Explain

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