Larsen, Inc., uses 160,000 plastic housing units each year in its production of paper shredders. The cost of placing an order is $60. The cost of holding one unit of inventory for one year is $7.50. Currently, Larsen places 40 orders of 4,000 plastic housing units per year.

Required:

1. Compute the annual ordering cost.

2. Compute the annual carrying cost.

3. Compute the cost of Larsen’s current inventory policy. Is this the minimum cost?

Why or why not?

LO1