Annual demand for a chemical product is 1200 units. Suppose that the item costs $10 per unit, the monthly holding cost is $2 per unit, and the ordering cost is $100. Assume that the demand rate is constant during the year.

Part A: Find the economic order quantity, corresponding annual total cost, cycle time, and a number of order in a year.

Part B: Now suppose that the store manager finds out that there have been some errors in calculating the inventory holding cost and it has been highly underestimated. Specifically, the correct monthly holding cost is $4 per unit (i.e., double the initial estimate). On the other hand, due to operational restrictions, she cannot change the order quantity and thus use the same order size from part A. How much did this error cost the store? (This can also be considered as a penalty for parameter misestimation).

Hint: Calculate the new (correct) optimal order quantity and the corresponding total cost with the new information. See how much total cost is affected by using the order quantity from part (a) instead of the correct quantity.

The College of Business uses 800 units of ink cartridges per month. There are two suppliers: supplier A or supplier B. Their price list is given below. Ordering cost is $50 and annual holding cost rate is 50%. Supplier A Supplier B Quantity 1-499 500-999 1000+ Unit Price Quantity 1-399 400-799 800+ 17.00 16.75 16.50 Unit Price 17.10 16.85 16.25 Should the office order from Supplier A or Supplier B? What order quantity is optimal and what is the annual total cost?