1. The demand for a particular part called SKU 005 is 1,500 units a year. The cost of one SKU 005 is $50.00. It costs $60.00 to place an order SKU 005, and the user of SKU 005 has a per year inventory carrying cost of 25% of unit cost. Assume that there are 250 working days in the year where SKU 005 is used.

a. What is the combined annual holding and ordering cost of an order size of 200 units for SKU 005?

b. How many of SKU 005 should be ordered, to minimize combined ordering and holding cost?

c. The vendor who sells SKU 005 has just offered a 5% discount for orders of 500 or more. Now how many should be ordered?

d. Once the purchasing manager for SKU 005 places an order, it always takes the vendor 5 working days to deliver that order. What should the purchasing managers reorder point be?

e. Why are we concerned the ROP?