4.3 Annual demand of vitamins is 100,000 bottles at the Nutrition Store (NS). Currently NS purchases vitamins from General Health (GH) for $10 (capital cost) a bottle with a lot size of 10,000. The xed ordering cost is $1000. The inventory holding cost is 20% of the capital cost. GH’s production cost is $5 per bottle of vitamins. The inventory holding cost is $1 per bottle per year. GH incurs an order lling cost of $3000 each time it ships vitamins to NS.

(a) What is the annual inventory cost (holding + ordering) at NS?

(b) What is the annual inventory cost (holding + order lling) at GH?

(c) If GH offers a price of $9.94 for order quantity of 20,000 and above and NS changes its lot size to 20,000, what is the saving in total annual inventory cost at the two companies?