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Item X is a standard item stocked in a company's inventory of component parts. Each year the firm, on a random basis, uses about 1,600 of item X, which costs $25 each. Storage costs, which include insurance and cost of capital, amount to $8 per unit of average inventory. Every time an order is placed for more of item X, it costs $16.
a. Whenever item X is ordered, what should the order size be?
b. What is the annual cost for ordering item X?
c. What is the annual cost for storing item X?
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