Answer:
a) Total annual inventory cost (including purchase cost) for the current supplier = $421,154
b) Annual holding cost for the new supplier (when purchasing 3,000 each order) = $3,675
c) Total annual inventory cost = $389,298
d) Since the total cost has reduced, Flora Beauty should choose the new supplier option.
Step-by-step explanation:
Annual demand, D = 22,000
Unit cost, C = $19
Ordering cost, K = $85
Unit carrying cost, h = 14% of C
h = 0.14*19 = $2.66
(a) Total annual inventory cost for the current supplier,

...........(1)
Economic order quantity,Q'

Su bstitute Q' and other parameters into Tc


(b)
Q = 3000
C = $17.50
h = 0.14*17.50 = 2.45
Annual holding cost for the new supplier = (Q/2)*h = (3000/2)*2.45 = $3,675
(c)
Total annual inventory cost = (D*C) + (Q/2)*h + (D/Q)*K
Total annual inventory cost = (22000*17.5) + (3000/2)*2.45 + (22000/3000)*85
Total annual inventory cost for the new supplier = $389,298
d)
Since the total cost has reduced, Flora Beauty should choose the new supplier option.