Bagley Bags is trying to determine its optimal inventory policy.

Answer the questions show all work.

The following relationships and conditions exist for the firm:

1. Annual sales are 120,000 units - assume a 360-day year
2. Purchase price is $500 per unit
3. Carrying costs are 20% of inventory value
4. Order costs, per order, are $600
5. Optimal safety stock of 500 units is currently in the companys inventory

1. What is the Economic Order Quantity?

2. What is the companys annual Total Inventory Costs?
3. How often will the company reorder?
4. What is the purpose of safety stock?