Company LN produces an end product 'W' for the market. One unit of 'W' is made by assembling 2 units of K, 3 units of L and 4 units of M. One unit of K is made of 2 units of G and 3 units of H; one unit of L is assembled using 2 units of M and 2 units of N. Current on-hand inventories for L and M are 400 units and 1000 units, respectively. Scheduled receipts are 350 units for L at the beginning of week 1 and 450 units for M at the beginning of week 2.

Lead times for K and L are one week, and lead times for other components are two weeks. The final assembly time for 'W' is one week.

1. Calculate the total inventory cost for component M during the eight week period for the fixed-period-of- two ordering policy. Note that, for each week, the inventory cost may include a fixed cost and a holding cost. We assume that the per order fixed cost is $500/order, and the unit holding cost is $1 per item per week. The fixed cost is incurred each time when the company places an order. More precisely, if the company places an order at the beginning of a week, then the company incurs the fixed cost for this week; otherwise, the fixed cost for the week is zero. The holding cost is calculated according to the number of remaining items at the end of each week. For example, if 10 units of component M are remaining at the end of a week, then the holding cost for this week is 10 x $1 = $10. [4 marks]