Question: Item X is a standard item stocked in a companys inventory of component parts. Each year the firm, on a random basis, uses about 2,000

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 2,000 of item X, which costs $25 each. Storage costs, which include insurance and cost of capital, amount to $5 per unit of average inventory. Every time an order is placed for more items X, it costs $10.

a. Whenever item X is ordered, what should the order size be?

b. What is the annual cost for ordering item X?

c. What is the annual cost for storing item X?

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