Question: (5 marks)
(i) A printing company estimates that it will require 2,000 reams of a certain type of paper in a given period. The cost of carrying one unit in inventory for that period is 50 cents. The company buys the paper from a wholesaler in the same town, sending its own truck to pick up the orders at a cost of $25.00 per trip. Treating this cost as the order cost,
(a) what is the optimum number of reams to buy at one time? (1 mark)
(b) How many times should lots of this size be bought during this period? (1 mark)
(c) What is the total minimum cost (holding and ordering) of maintaining inventory on this item for the period? (1 mark)
ii) Perform an ABC analysis on the following set of products. (2 marks)
Item Annual Demand Unit Cost
A211 1200 $9
B390 100 $90
C003 4500 $6
D100 400 $150
E707 35 $2000
F660 250 $120
G473 1000 $90
H921 100 $75