10. The Heavy Nitro Company is considering the optimal batch size for re-order of concentrated sulphuric acid. The management has supplied the following information:

The purchase price ofH2S04 is Rs 2 per gallon. The clerical and data processing costs are Rs 10.625 per order. All the transport is done by rail. A charge of Rs 40 is made each time the special line to the factory is opened. A charge of20 paise per gallon is also made. The company use 40,000 gallons per annum. Maintenance costs of stock are Rs 4 per gallon per year. Each gallon requires 1/2 square foot of storage space. If warehouse space is not used, it can be rented out to Manganese Ltd. at Rs 2 per square foot per annum. Available warehouse space is 1,000 square feet, the overhead costs being Rs 2000 per annum.

Assume that all the free warehouse space can be rented out.

(a) Calculate the economic re-order size.

(b) Calculate the minimum total annual cost of holding and re-ordering stock.