California Chips (CC) produces circuit boards for electronic product manufacturers. You have been called in to settle a dispute between CC and Southern Audio, a manufacturer of high-end audio equipment.

Southern Audio buys 10,000 units of a particular component from CC every year. It insists that CC keep a one-month inventory to accommodate fluctuations in Southern’s demand. CC does not want to keep any inventory and says that Southern Audio should buy components in advance and store them.

You determine that the inventory storage costs per unit are $0.10 at CC and $0.20 at Southern Audio.

Required How do you suggest the two companies settle their dispute?