14 Consider a firm that knows that the price of the product it is ordering is going to increase permanently by $X. How much of the product should be ordered before the price increase goes into effect?

Here is one approach to this question: Suppose the firm orders Q units before the price increase goes into effect.

a What extra holding cost is incurred by ordering Q units now?

b How much in purchasing costs is saved by ordering Q units now?

c What value of Q maximizes purchasing cost savings less extra holding costs?

d Suppose that annual demand is 1,000 units, holding cost per unit-year is $7.50, and the price of the item is going to increase by $10. How large an order should be placed before the price increase goes into effect?