1. A component arrives gradually and at the rate of 20 units per week and is used with the rate of 5 units per week. The item costs $2,000 per unit. The cost per order is $10,000 and the annual holding cost is .25 percent of the unit cost.

a) Which inventory model should be used: EOQ (Economic Order Quantity) model or POQ (Production Order Quantity) model? Why?

b) What is the optimal order quantity?

c) What is the optimal annual ordering cost?

d) What is the optimal annual holding cost?