Q2 10 a Do you agree with the following statement According to the EOQ model

Q2 10 a do you agree with the following statement

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Q2 (10’)(a)Do you agree with the following statement: “According to the EOQ model, when the setup costincreases, the optimal order cycle has to increase.” Explain. (2’)
(b)A manufacturer keeps a continuous inventory review system on the key component, part X. Theannual demand on part X is 12,000 units and the demand rate is constant. The supplier charges $50for each unit of part X. Each order costs $150 to process and annual holding cost per unit is 20% ofthe purchase price. The supplier plans to offer discount on large orders in the following way. Find outthe optimal order quantity. (4’)Order quantity (units)Price per unit0 to 799$50800 to 3,999$454,000 or more$44 (c)The local bakery keeps stock of a number of ingredients as shown in the table below. Please make anABC classification on these ingredients. Please specify which class each item belongs to. (4’) 3
cinnamon 340 flavouring 200 flour 29,800 fruit jams 600 raisin 720 salt 900 shortenings 2,700 sugar 2,300 vegetable oil 12,900 Answer: Ingredient Annual usage ($) % cumulative % Classification flour 29,800 53.30% 53.30% A vegetable oil 12,900 23.07% 76.37% A chocolate 2,850 5.10% 81.47% B shortenings 2,700 4.83% 86.30% B sugar 2,300 4.11% 90.41% B baking powder 1,700 3.04% 93.45% B chewy candies 900 1.61% 95.06% C salt 900 1.61% 96.67% C raisin 720 1.29% 97.96% C fruit jams 600 1.07% 99.03% C cinnamon 340 0.61% 99.64% C flavouring 200 0.36% 100.00% C

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