Question
Thulani Limited, a retail outlet in Table View, Cape Town, orders 128 000 bottles of water per year from a distributor in Polokwane. One bottle
Thulani Limited, a retail outlet in Table View, Cape Town, orders 128 000 bottles of water per year from a distributor in Polokwane. One bottle of water delivered to Thulani Limiteds central warehouse costs 20 cents (including freight charges). The company borrows funds at 10.25% interest to finance inventories. As Thulani Limiteds cost accountant, you have calculated that it costs R 6 to place an order for bottled water and that the variable annual expense (insurance, electricity, and handling) is 4 cents for each bottle of water. Required: a) Calculate the number of bottles of water that you should request in each order. (3 Marks) b) Calculate the annual number of orders at the EOQ. (3 marks) c) Calculate the total annual ordering costs at the EOQ. (3 marks) d) Calculate the total annual carrying costs at the EOQ. (3 marks) e) Determine the order size decision your company should make if the Polokwane distributor offers a 4% discount on the delivery for minimum orders of 12 800 bottles. (10 marks) f) Assuming sales are uniform throughout the year (360 days) and the lead time is four days, determine the reorder point at the EOQ. (3 marks)
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