SwellSound Corp. produces and sells CD players. The demand for CD players is 360,000/year. Each CD player requires a laser. These lasers are purchased from an outside supplier. The cost of placing an order for lasers is $375, while the inventory holding cost is $4.80/laser/year.
a) Find the optimal order quantity for lasers. (7500)
b) What is the total cost/year? ($36,000)
c) Suppose the ordering process is streamlined so that the cost of placing an order is reduced by 36%. What annual cost saving is achieved? The firm always uses an optimal policy that minimizes total cost. ($7,200)