The Heavy Duty Company produces a variety of industrial machinery. One of its vendors is Fine Bearings, which supplies Heavy Duty with all of its ball bearings — approximately 52,000 per year. Since Fine Bearings is a small company, it fills large orders gradually rather than in a single delivery. Each time Keith Graham, Heavy Duty's inventory manager, places an order for ball bearings, Fine Bearings begins delivering them a week later at the rate of 2,000 per week. Keith estimates that, in addition to the purchase cost, the cost of placing each order (including shipping costs, the cost of processing and paying for the order, and the cost of inspecting the deliveries and putting them into storage) is $1,000. He also estimates that the cost of holding each ball bearing in inventory is $13 per year.
1. Using EOQ with gradual replenishment, what is the optimal quantity size?
2. What is the total annual setup cost?
3. What is the total annual holding cost?
4. What is the total variable cost (TVC)?