Reference no: EM133035357

Question - Deli Pizza is a new pizza restaurant that opened two years ago in Seksyen 7, Shah Alam. The restaurant is near to a college campus and some of the part-time workers are students from the college. The owner of Deli Pizza, Mr. Hady is concern about the stock level of its restaurant, particularly cheese as the most expensive material in making pizza. Mr. Hady wants to ensure that the cheese inventory is sufficient as needed and there is no stock surplus that will increase holding cost. Mr. Hady has asked one of his part-time workers who is also a final year accounting student, regarding any formal model to order the cheese. The staff has suggested to use the Economic Order Quantity (EOQ) model in planning inventory. Currently the cheese is ordered in blocks at RM17.50 per block at order size of 400 blocks. Each year the restaurant uses an average 14,000 blocks of cheese. The cost of carrying one block of cheese is 10% of its purchase price. It costs the restaurant RM40 to place and receive an order.

Required -

a. Based on the current order size, calculate the total cost of ordering and carrying the cheese.

b. Determine the order size of the cheese if the restaurant were to change to the EOQ model

c. If the restaurant uses the EOQ model, how many numbers of orders per year? How does this compare to the current reorder policy?