Motorola obtains cell phones from its contract manufacturer located in China to supply the U.S. market, which is served from a warehouse located in Memphis, Tennessee. Daily demand at the Memphis warehouse is normally distributed, with a mean of 5,000 and a standard deviation of 4,000. The warehouse aims for a Fill Rate of 99 percent. The company is debating whether to use sea or air transportation from China. Sea transportation results in a lead time of 36 days and costs $0.50 per phone. Air transportation results in a lead time of 4 days and costs $1.50 per phone. Each phone costs $100, and Motorola uses a holding cost of 20 percent. Given the minimum lot sizes, Motorola would order 100,000 phones at a time (on average, once every 20 days) if using sea transport and 5,000 phones at a time (on average, daily) if using air transport.

First, assume that Motorola uses air transportation.

(a) Determine the safety stock level that the warehouse should set.

(b) Determine the expected annual safety stock holding cost.

(c) Determine the expected annual cycle stock holding cost.

(d) Determine the expected annual in-transit stock holding cost.

(e) Determine the expected annual transportation cost.