Question 3 (35 marks) Electric spark Co

Subject:BusinessPrice: Bought3

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Question 3 (35 marks) Electric spark Co., uses 57,800 of component Zuma. The cost of placing an order is estimated at $16 per order. The annual holding cost is 20% of the purchase price of $20 per unit. The following information is provided to you by the management accountant to use in your analysis: The Normal usage 200 units per day Maximum usage 300 units per day Minimum usage 160 units per day Reorder period 20 to 30 days Required: 1. Determine the EOQ using the equation method (6 marks) & draw the EOQ graph (4 marks). 2. Calculate the total cost of inventory per year, in case the company decided to use the EOQ. (5 marks) 3. Electric spark has been offered a 3 per cent discount on the cost if it places orders in quantities of 20,000. Discuss whether the company should accept the discount and place larger orders. (10 marks) 4. Define lead time (2 marks) and calculate reorder level by using information provided above in the table. (8 marks)