Part 4. Question 10. [ Use Video-4 and the Excel file under Inventory heading. ]

The inventory manager has typically ordered a quantity of 500 each time an order is needed for one of their popular tires to take advantage of the discount provided by the supplier and save the company money. The following discount schedule has just been received reflecting recent changes in some of the discount percentages. The manager still maintains that an order quantity of 500 will save the company the most money because of the quantity discount.

Order Quantity	Discount	Acquisition Cost
0-199	0%	80
200-499	5%	76
500 or more	10%	72

Last year, for an annual demand of 1000 tires and a lot size of 500 tires which resulted in an acquisition cost of $72, they had a total ordering cost of $380 and a total carrying cost of $34200. They forecast an annual demand of 1000 tires again for this year. Their unit carrying cost per dollar of inventory and their unit ordering cost per order for this year is assumed to be the same as last year. Since demand last year was 1000 and a lot size of 500 was placed, they had an annual frequency of 2. Since last year, the lot size was 500 and no safety stock, they had an average annual inventory of 250 items.

. What is the optimal inventory policy that minimizes total cost for a periodic review system?

(A) A policy of ( 2.6 weeks , 50 )

(B) A policy of ( 2.4 months, 200 )

(C) A policy of ( 2 quarters , 500 )

(D) A policy of ( 1 year , 1000 )

(E) None of the above