Log 203 Inventory management

Question 2 

Fresh Land supermarket is planning to order an item from its supplier. The supplier offers a discount of r% on orders of 5,000 units. The discount rate, r is given by, r = X + 1, (where X is the last digit of your Student PI number, e.g. if your PI number is W1234567, then X = 7 and the discount rate, r would be r = 7 + 1 = 8). The annual demand for the item is 40,000 units with a unit cost of $9. The ordering cost is $35 per order and annual inventory carrying cost is 22%. 

(a) Solve for the purchase cost, cost of ordering, cost of carrying and total cost for an order of 5,000 units and EOQ. Present your findings in a tabular form. 

(b) The supermarket is not sure whether to order based on EOQ or take advantage of the discount offered by the supplier. Based on your finding in part (a), determine which option is better and how much cost can be saved by choosing that option. 

(c) Due to the market conditions, the supermarket expects demand to reduce by 70%. Should the company continue with the decision taken in (b) or reverse the decision? Explain your answer.