Zarlon Company uses 24,000 circuit boards each year in its production of stereo units. The cost of placing an order is $125. The cost of holding one unit of inventory for one year is $6. Currently, Zarlon places 12 orders of 2,000 circuit boards per year.

Required:

1. Compute the annual ordering cost.

2. Compute the annual carrying cost.

3. Compute the cost of Zarlon’s current inventory policy.

4. Compute the economic order quantity.

5. Compute the ordering cost and the carrying cost for the EOQ.

6. How much money does using the EOQ policy save the company over the policy of purchasing 2,000 circuit boards per order?

7. Suppose that the supplier charges an extra $0.05 per unit to purchase circuit boards in orders of 1,500 or less. Should Zarlon switch to the EOQ policy or not?