Question II [Total 10 Marks]: Inventory Management HEP Company produces the Worth Value shampoos to supply Kostes wholesale store. The annual demand of Koste is 22,500 bottles. Its production rate is 200 bottles of the Worth Value shampoo per day. Production setup cost is $150 and holding cost is $0.5/bottle/year. Assume that HEP operates 300 days per year. 1) What is the optimal size of the production? HEP Company needs to plan its storage room capacity. What is the capacity of its storage room? [5 Marks] 2) Suppose that a new customer would like to negotiate a contract for purchasing the Good Deal shampoos from HEP Company. The Good Deal shampoo has a very similar production process as that of the Worth Value shampoo. Based on annual demand predicted by the new customer and other information, the manager of HEP estimates that the length of the production run of the Good Deal shampoo is 30 days. Assume that the switching time from producing the Worth Value shampoos to the Good Deal shampoo is short enough to be ignored. To make sure that it can satisfy this new customer, should HEP Company accept the contract with the new customer? Explain your reasoning and justify quantitatively. [5 Marks]