Novelty Gifts, Inc. is experiencing some inventory control problems. The manager, Wanda LaRue, currently orders 10,000 units four times each year to handle annual demand of 40,000 units. Each order costs $15 and each unit costs $1.50 to carry. Ms. LaRue maintains a safety stock of 200 units.
a) What is Novelty Gifts' current total annual inventory cost?
b) Calculate the economic ordering quantity (EOQ).
c) What is average inventory under EOQ if Ms. LaRue maintains a safety stock of 200 units?
d) Calculate total annual inventory cost under EOQ. How does this compare to her current inventory costs?