BGood Bhd uses the ‘optimal batch size' model to determine optimal levels of raw materials. MaterialB currently costing RM60 per unit is consumed at a steady, evenly rate over the company's planninghorizon of one year; the current usage is 4,200 units per month. Further information relating to theoperation of BGood is as follows:
1. The costs of ordering B are invariant with respect to order size; clerical costs of ordering havebeen calculated at RM30 per order.
2. Transportation cost of RM100 per order is charged by supplier of material B.
3. Storage insurance cost per unit is RM0.80
4. Warehouse cost per unit is RM0.30
5. Costs of deterioration and obsolete stocks per unit is RM0.40
6. Lead time is 2 weeks and the company works 50 weeks annually
Required:
(a) Calculate the optimal order level of material B.
(b) The supplier of material B has very recently offered BGood a quantity discount of RM1 perunit for all orders of 4,000 or more units of material B. Evaluate whether the quantitydiscount offered should be taken up by BGood Bhd.
(c) Calculate the re-order level if the company's policy is to maintain 200 units safety stock