A manufacturing firm located in Calgary produces an item in a 3-month time supply. An analyst, attempting to introduce a more logical approach to selecting run quantities, has obtained the following estimates of the characteristics of the item:

D = 4,000 units/year A = $5 v = $4 per 100 units r = 0.25 $/$/year Note: Assume that the production rate is much larger than D.

a. What is the EOQ of the item?

b. What is the time between consecutive replenishments of the item when the EOQ is used?

c. The production manager insists that the A = $5 figure is only a guess. Therefore, he insists on using his simple 3-month supply rule. Indicate how you would find the range of A values for which the EOQ (based on A = $5) would be preferable (in terms of a lower total of replenishment and carrying costs) to the 3-month supply.