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Consider a yoga studio that sells yoga mats. Each yoga mat costs the studio $10.25 if it purchases less than 50 in a single order. If the studio purchases at least 50 but less than 100, the cost is $10.00 per mat. If the studio purchases at least 100 but less than 400, the cost is $9.75 per mat. Finally, if the studio purchases at least 400 mats, the cost is $9.25 per mat. Demand for each mat is estimated to be 540 annually, evenly spaced throughout the year. The ordering costs is $50 per order. The holding cost rate is estimated to be 40% annually.
a. If the company used a fixed order quantity model, calculate the optimal economic order quantity. Show all work.
b. If management decided to order yoga mats on a monthly basis (one order per month), how much more would it cost the company? Show all work.
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