The following information applies to Water Springs,which supplies landscaping waterfalls.Water Springs purchases the waterfalls from a manufacturer which has a reputation for very high quality in its manufacturing operation. The use a 365-day calendar throughout the company.
Annual demand 21,400 units
Lead time in days 10 days
Cost of placing an order $30/order
Cost for handing and storing inventory $2/unit
Cost (purchase price) $45/unit
Required rate of return 20%
a. What is the order quantity that minimizes the relevant ordering and carrying costs?
b. At what level of inventory should Water Springs reorder more inventory?