Starr' cat hotel operates 52 weeks per year, 6 days per week, and uses a continuous review inventory system. It purchases kitty litter for $20 per bag. The following information is avaliable about these bags.

Demand = 270 bags/week

Order cost = $45/order

Annual holding cost = 20 percent of cost

Lead Time = 2 weeks (12 working days)

a) What is the EOQ? What would be the average time between orders (in weeks)?

b)The store currently uses a lot size of 1200 bags (i.e. Q=1200). What is the annual holding cost? Annual ordering cost? Without calculating the EOQ, how can you conclude from these two calculations that the current lot size is too large?

c) What would be the annual cost saved by shifting from 1200-bag lot size to the EOQ?