Question 2:XYZ makes product A in its plant located in Wisconsin. Product A is sold directly to all customers over USA. XYZ currently divides the United States into ten territories, each with its own sales force. All product inventories are maintained locally in each territory and replenished from the plant every five weeks using UPS. The average replenishment lead time using UPS is one week. UPS charges at a rate of $0.75 + 0.33x where x is the quantity shipped in pounds. Product A weighs 0.3 pounds and costs $150 each. Weekly demand for A in each territory is normally distributed, with a mean of 25 units and a standard deviation of 6 units. XYZ maintains sufficient safety inventories in each territory to provide a CSL of 0.975 for each product. Annual holding cost at XYZ is 30%. In addition to the current approach, the management team at XYZ is considering new option: New Option : Eliminate inventories in the territories, aggregate all inventories in a finished goods warehouse in Wisconsin, and replenish the warehouse once a week. If inventories are aggregated, orders will be shipped using FedEx, which charges $7.25 + 0.77x per shipment, where x is the quantity shipped in pounds. The factory requires a one-week lead time to replenish finished-goods inventories at the warehouse. An average customer order is for 5 units of A. a. Determine the total annual cost of XYZ's current system. b. Determine the total annual cost of New Option for XYZ's distribution system