Question: Question 4) T = Total annual inventory cost p = Purchase price of 1 unit q = Order quantity in units D = Annual demand

Question 4) T = Total annual inventory cost p = Purchase price of 1 unit q = Order quantity in units D = Annual demand quantity in units K = Fixed cost per order, setup cost (not per unit, typically cost of ordering and shipping and handling. This is not the cost of goods.) h = Annual holding cost per unit, also known as carrying cost or storage cost (capital cost, warehouse space, refrigeration, insurance, etc. usually not related to the unit production cost) Use the above variables and show that the minimum value of Annual Total Cost is achieved when q=(2KD/h) You must set up an equation for the Annual Total Cost, and you must apply calculus reasonably to deduce the above formula. You must explain each and every step clearly. [20 marks]

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