In its manufacturing process, a company consumes a small component at an even rate of 2,500 per week. The company operates 50 weeks in a year. At present, the company purchases the component from a supplier at RM2 each. The cost of placing an order is RM20 irrespective of the quantity ordered. The cost of storage is estimated to be RM5 per 100 components per year and the cost of capital is 20% per annum. a) If the company’s current policy is order 10,000 components, determine the sum of the ordering and carrying cost per year incurred by the company for this component (2 marks) b) Determine the optimum order quantity and the annual saving that can be obtained by implementing the minimum cost control policy.
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