The Strawberry Bread Company buys and then sells (as bread) 2.6 million bushels of

wheat annually. The wheat must be purchased in multiples of 2,000 bushels. Ordering

costs, which include grain elevator removal charges of P3,500, are P5,000 per order.

Annual carrying costs are 2 percent of the purchase price of P5 per bushel. The

company maintains a safety stock of 200,000 bushels. The delivery time is 6 weeks.

REQUIRED:

1. What is the EOQ?

2. At what inventory level should an order be placed to prevent having to draw on

the safety stock?

3. What are the total inventory costs, including the costs of carrying the safety stock?

4. The wheat processor agrees to pay the elevator removal charges if Strawberry

Bread will purchase wheat in quantities of 650,000 bushels. Would it be to

Strawberry Bread's advantage to order under this alternative?