Assume you are building custom motorcycles. All custom bikes use some standard parts. Part number HD-60 is stocked in your inventory of component parts. Each year you use about 2,000 HD-60 components at a cost of $25 each. Storage costs, which include insurance and cost of capital, amount to $5 per unit of average inventory. Every time an order is placed for HD-60 components, it costs $10.
(a) How many items of HD-60 should be ordered at a time?
(b) What are the annual costs of ordering HD-60 components?
(c) What is the annual cost of storing HD-60 components?