Pullman carries a part that is popular in the manufacture of automatic sprayers. Demand for this part is 4,000 units per year; order costs amount to $30 per order, and holding costs total $1.50 per unit. Pullman currently places four orders per year with its suppliers.

Management is considering the implementation of an economic order quantity model in an effort to better manage its inventories.

Required:

Compute Pullman's economic order quantity.

Compute total annual inventory costs if Pullman follows the EOQ policy.

How much will the company save by adopting the EOQ model?

Briefly explain the philosophical difference between the EOQ model and the just-in-time model. Which of the two models will likely result in lower holding costs for the firm? Why?