A birdfeeder is one of the top-selling items at the Museum of Nature’s gift shop. Louise, the museum’s manager, estimates that weekly sales to be 20 birdfeeders. The purchase cost of birdfeeders is $16 per unit, and Louise estimates that it costs 25% of an item’s value to hold one unit in inventory for a year. The gift shop is open for 48 weeks per year. The cost of placing an order is estimated to be $120 per order and the shipments are carried by the birdfeeder manufacturer. According to the current inventory policy, Louise is placing the same order every four months, whenever the inventory level hits zero [Assume: 1 year = 12 months]. Required:
a. What is the total annual cost of this current inventory policy?
b. What is the economic order quantity (EOQ) for Louise to order?
c. What is the difference in the total annual cost between the current inventory policy and the new inventory policy that utilizes EOQ?
d. What will be the new EOQ if ordering cost is dropped to $30/order? How many months will there be in between consecutive orders?