Problem:

M. Cotteleer Electronics supplies microcomputer circuitry to a company that incorporates microprocessors into refrigerators and other home appliances. One of the components has an annual demand of 265 units, and this is constant throughout the year. Carrying cost is estimated to be $1.25 per unit per year, and the ordering cost is $19 per order.

Required:

Question 1) To minimize cost, how many units should be ordered each time an order is placed?

Question 2) How many orders per year are needed with the optimal policy?

Question 3) What is the average inventory if costs are minimized?

Question 4) Suppose that the ordering cost is not $19, and Cotteleer has been ordering 125 units each time an order is placed. For this order policy (of Q = 125) to be optimal, determine what the ordering cost would have to be.

Provide thorough explanation of every question given in the problem.