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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