Problem: Item X is a standard item stocked in a company's inventory of component parts. Each year the firm, on a random basis, uses about 2000 units of X which costs $25 each. Storage cost amounts to $5 per unity of average inventory. Every time an order is placed for more item X, it costs $10.
Required:
Question 1) Whenever item X is ordered, what should be the order size?
Question 2) What is the annual ordering cost?
Question 3) What is the annual storing cost?
Solve the problem and show step by step solutions.