Ottis, Inc., uses 640,000 plastic housing units each year in its production of paper shredders. The cost of placing an order is $30. The cost of holding one unit of inventory for one year is $15.00. Currently, Ottis places 160 orders of 4,000 plastic housing units per year.
1. Compute the annual ordering cost.
2. Compute the annual carrying cost.
3. Compute the cost of Ottis’s current inventory policy. Is this the minimum cost? Why or why not?