You are the senior financial analyst in the Operations Management department at Silicon Graphics. Your manager has asked you to determine how much the company could save each year if it converted to a just-in-time inventory system. Currently, the company maintains an inventory of raw materials that must be stored in a warehouse until they are requisitioned for production. If converting to just-in-time, you would no longer carry inventory because suppliers would deliver raw materials as needed. The following inventory-related information is relevant to your analysis:

A. On average, Silicon Graphics maintains 100,000 units in its raw materials inventory daily.

B. The inventory holding cost is approximately $0.10 per unit per day.

C. The annual rent expense for the inventory warehouse is $75,000.

D. If Silicon Graphics converts to a just-in-time inventory system, the holding cost will be eliminated and the warehouse will no longer be needed.

Based on the information provided, how much could Silicon Graphics save on inventory carrying costs each year if it converts to a just-in-time inventory management system (assume a 365-day year)?

a. $175,000

b. $100,000

c. $4,000,000

d. $3,650,000

e. $3,725,000