Question: The X is a standard item stocked in a company's inventory of component parts. Each year the firm, on a random basis, uses a bout 2,000 of item X, which costs $25 each. Storage costs, which include insurance and cost of capital, amount to $5 per unit of average inventory. Every time an order is placed for more item X, it costs $10.
1) Whenever item X is ordered, what should be the order size?
2) What is the annual cost for ordering item X?
3) What is the annual cost for storing item X?