3. The annual demand for vascular kits is 1,600. The holding cost is $300 per kit per year, and the cost of placing an order is estimated at $50. The purchase price per unit is $1,000. Assume that demand is known and constant.

a. Determine the optimal order quantity of vascular kits.

b. Determine the total annual ordering and holding costs.

c. Management would prefer to set the holding cost as a percentage of purchase price. Thirty-five percent of the item’s price seems appropriate. Determine the new optimal order quantity and total costs.

d. What is the relative difference between the EOQs found in parts a and c? What is the relative difference in total annual costs found in parts b and c? What is your conclusion?