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Question 4 Economic Order Quantity 20 marks Alfred Wood operates a factory that manufactures bread and cakes. One of the major raw materials used is organic maize, which he buys for $5 per kilogram. The factory operates for 350 days each year. The following information has been provided: Annual usage of maize 80 000 kilograms Average time between placing and receiving order 4 days Average costs of ordering and receiving inventory (per order) $8.00 Estimated annual costs of carrying a kilogram of maize in stock $0.50 Required: 1. Use the above data to calculate: a. Economic Order Quantity (EOQ) (4 marks) b. Number of orders per year (4 marks) 2. Wood has recently heard of just-in-time (JIT) purchasing and wonders if he should use it in his business. However, he is very concerned that the cost of placing frequent orders will be too high. Explain three advantages of JIT purchasing and addresses specifically his concerns about cost. (6 marks) 3. After a brief analysis of the cost of storing maize, including the cost of wasted space and inefficiency, you have discovered that the annual carrying cost can be reduced to $0.20 per kilogram. Wood has asked you to help him negotiate a JIT arrangement with a major supplier. After some discussion you have recovered that the cost of placing an order for maize can now be reduced to just $2.00 per order. Calculate: a. New EOQ (3 marks) b. New umber of orders per year

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