Question: The costs of placing an order is $150. It is estimated that 1,000 units will be used in the next 12 months. The carrying cost per unit per month is $2.50.

a. Compute the optimum order size

b. Now suppose that the company could lower the ordering cost to $50; the cost of the effort to accomplish this change is $1,000. Assume the product will be sold only for the next two years. Compute the new optimal order quantity if the lower ordering cost were implemented, and determine if the company should invest $1,000 in the ordering-cost reduction program.