Exercise $1-15$A $($Static$)$ Using JIT to minimize holding costs LO $1-5$

Gwen Pet Supplies purchases its inventory from a variety of suppliers, some of which require a six$-$week lead time before delivering the goods. To ensure that she has a sufficient supply of goods on hand, Ms$.$ Leblanc, the owner, must maintain a large supply of inventory. The cost of this inventory averages $$67,000.$ She usually finances the purchase of inventory and pays a $5$ percent annual finance charge. Ms$.$ Leblanc's accountant has suggested that she establish a relationship with a single large distributor who can satisfy all of her orders within a two$-$week time period. Given this quick turnaround time, she will be able to reduce her average inventory balance to $$17,000.$ Ms$.$ Leblanc also believes that she could save $$9,000$ per year by reducing phone bills, insurance, and warehouse rental space costs associated with ordering and maintaining the larger level of inventory.

Required

b$.$ Based on the information provided, how much of Ms$.$ Leblanc's inventory holding cost could be eliminated by taking the accountant's advice?

Eliminated inventory holding cost