1. Basic Inventory Ordering Strategy

The MSU supply facilities office buys 2,000 letter openers and 1,000 scissors annually from the same supplier. The letter openers cost $1.25 each and the scissors cost $5.50 each. Placing, tracking and receiving orders cost $16 each order and the holding costs are assessed at 20 percent annual interest rate for both letter openers and scissors.

1. Determine

1. the optimal size of the orders of letter openers and scissors,
2. the optimal time between placement of orders of these two items, and
3. the average total annual cost of holding and ordering if these items are ordered separately

b.If both items are ordered and received simultaneously, the same ordering cost applies to the combined order. Compare the total inventory cost if

i.they are both ordered when the letter openers would normally be ordered

ii. they are both ordered when the scissors would normally be ordered.