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The Fantale Sweets Company uses the standard economic order quantity to determine how frequently it will order a particular raw material.
Estimated usage
2,480,000 kilograms per annum
Working days
250 days per year
Purchase price
$10.00 per kilo
Cost of placing an order
$5.00
Carrying cost
$1.50 per kilo, (this includes any interest costs)
Lead time
9 working days
Required:
a) Using the Economic Order Quantity (EOQ) model, what quantity should be ordered?
b) What is the total cost of the company's inventory if it adopts the EOQ policy?
c) What is the reorder point?
d) The supplier is offering a discount of 2% for minimum orders of 10,000 kilos. Should the Fantale Sweets Company take the discount offer? (Show all workings to support your answer).
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