Joe's Drones is attempting to minimize total inventorycost and maximize profits this year. Each drone costs Joe $100 tobuy and he sells them for $150 each. Joe’s mom helps with thepurchasing and ordering and he pays her $100 for every order sheplaces. Joe leases warehouse space from a friend where he can storehis inventory and he pays $2.50 per month for each board that hehas to store to use this space.
Drones are a hot item and Joe expects to sell 2,500 ofthem this year. He is currently ordering once a month, but hethinks that he can save money if he optimizes his orderquantity.
a) If Joe continues to order once a month this year, what willhis Total Annual Cost of Inventory be?
b) Assuming Joe sells everything that he orders, what will hisannual profit be if he continues to order once a month
c) What quantity should Joe to order that would minimize TotalCost of Inventory (not Total Cost - the is Inventory only)?
d) How much will Joe’s annual profit change if he orders basedon the EOQ rather than ordering once a month?
