(a) Give two assumptions of the Economic Order Quantity (EOQ) model. [2]

(b) High Spirit Ltd. is retailer of beer barrels. The company has an annual demand
of 30,000 barrels. Fresh supplies can be obtained immediately. Ordering and
transport costs amount to $200 per order. The annual carrying cost of holding
one barrel in stock is estimated to be $12.
(i) Calculate the Economic Order Quantity (EOQ). [3]
(ii) Using the EOQ calculated in part (i) calculate the annual ordering costs. [2]
(iii) Using the EOQ calculated in part (i) calculate the annual stockholding
costs. [2]
(iv) Using the EOQ calculated in part (i) calculate the total inventory costs. [1]
(v) Another supplier does not charge order costs. However, this supplier
only delivers orders of size 5,000 beer barrels. The supplies will now
not be delivered instantly and so High Spirit Ltd. will have to keep a
safety stock of 5,000 barrels. Would it be more economical for High
Spirit Ltd. to use this supplier? [5]