21.3 We can answer by first calculating Annondale's carrying and restocking costs. The average inventory is 5,000 clubs, and, because the carrying costs are $1 per club, total carrying costs are $5,000. Annondale restocks every month at a fixed order cost of $5, so the total restocking costs are $60. What we see is that carrying costs are large relative to reorder costs, so Annondale is carrying too much inventory.

To determine the optimal inventory policy, we can use the EOQ model. Because Annondale orders 10,000 golf clubs 12 times per year, total needs (T) are 120,000 golf clubs. The fixed order cost is $5, and the carrying cost per unit (CC) is $1. The EOQ is therefore:

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