Inventory

Scotts Vacuum Cleaner Manufacturing Company produces 24,000 vacuum cleaners per year. One component part is required that is currently manufactured at one of its own facilities. It costs the company $10 per component, plus $20 to initiate a production order. They estimate that they have capacity to produce up to 40,000 components per year. Assume that holding costs are based on 24% annual interest.

What is the cost of the optimal policy?