Sky Co expects annual demand for product Y to be $500,000$ units. Product Y

has a selling price of $$19$ per unit and is purchased for $$11$ per unit from a

supplier, Sea Co$.$ Sky places an order for $50,000$ units of product Y at regular

intervals throughout the year. Because the demand for product Y is to some

degree uncertain, Sky maintains a safety $($buffer$)$ inventory of product Y which

is sufficient to meet demand for $30$ working days. The cost of placing an order

is $$40$ and the storage cost for Product Y is $20$ cents per unit per year.

Required:

$($i$)$ Calculate the annual ordering cost, annual inventory $($holding$)$ cost and

annual total cost of inventory of the current ordering policy. Ignore

financing costs in this part of the question. $(8$ marks$)$

$($ii$)$ Calculate the annual ordering cost, annual inventory cost and annual

total cost of inventory if the economic order quantity model is used to

determine the optimal ordering policy. Ignore financing costs in this part

of the question.