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Assume you are in charge of purchasing an item that has a monthly demand of 65 units. It has been calculated that the cost to place an order with your supplier is $11 per order. The current unit price is $55 and the carrying cost is estimated to be 15% of unit cost per year.
a. Using the Economic Order Quantity Model (EOQ), evaluate your current situation at $55 per unit. (Round to 2 decimal places)
What is your EOQ order quantity?
Annual Cost of Goods Sold (COGS):
Annual ordering cost:
Annual holding cost:
Annual total cost:
b. Your supplier has offered you a possible 2% discount on the price if you purchase in bulk (minimum quantity not specified yet). Using the Economic Order Quantity Model (EOQ), evaluate the effect of this 2% discount on per unit cost change on your annual costs.
What is your new EOQ order quantity?
Please show work.
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