Michael Lopez, financial manager of Medina Electronics, has been asked by the firms CEO, Francisco Ramirez, to evaluate the companys inventory control techniques and to lead a discussion on the subject with the senior executives. Michael plans to use as an example one of Medinas big ticket items, a customized computer microchip that the firm uses in its tablets and Laptops. Each chip costs Medina $250, and it must also pay its supplier a $1500 setup fee on each order; the minimum order size is 300 units. Medinas annual usage forecast is 6,000 units, and the annual carrying cost of this item is estimated to be 15% of the average inventory value. Michael plans to begin his session with the senior executives by reviewing some basic inventory concepts, after which he will apply the EOQ model to Medinas microchip inventory. As his assistant, you have been asked to help him by answering the following question

1. What is the EOQ for custom microchips? What are the total inventory costs if the EOQ is ordered?