A workshop purchases a component used in the production of its products directly from the supplier. The production operation requires 40,000 components annually. Assume that the ordering cost is £20 per order, the unit cost is £4 per component and the annual holding cost is 20% of the value of the inventory. The company has 250 working days per year and a lead time of five days. Answer and explain the following inventory policy questions: a. Calculate the Economic Order Quantity (EOQ). (4marks) b. Calculate the Re-Order Point (ROP). (3 marks) c. Determine the total annual costs associated with your recommended EOQ. (3 marks) d. If holding costs were to increase to 40%, what would be the effect on EOQ, ROP and total annual costs? (4 marks) e. Write a brief report (100-120 words) to the workshop manager and suggest your optimum inventory policy. (6 marks) Question C (
