Cool-Aires Inc. is a company that sells and repairs car air-conditioning units and management is planning to reduce its total annual inventory costs. If the current market condition will not be favorable to the company, the annual demand is estimated to be 60,000 units. However, if it will be favorable to the company, the demand will be 30,000 more than when it is not. Their procurement head estimates that the ordering cost is peg at P 200.00 per order and the holding cost is P 200.00 per unit annually. 1. What are the EOQ, annual ordering cost, annual holding cost and total annual inventory costs under the two market conditions? 2. If the procurement head will be able to identify two improvement projects in conjunction with her team: Project A (Reducing ordering cost to P 180.00 per order) and Project B (Reducing holding costs to P 140.00 per unit every year). a) Which project will result in the greatest reduction of the EOQ and total annual inventory costs? b) Which of the projects will you recommend and why?
