A company purchases two products which are being supplied by the same manufacturer. The inventory management activities of these products have been handled independently for a long time. The related information on these products is given in the table below. Product A Product B Annual demand (units/year) Unit cost ($/piece) Fixed order cost ($/order) Inventory holding cost ratio 25% 20% Since they are purchased from the same supplier, a common order of these products causes 20 % savings on both fixed costs. Determine which of following alternatives provides the minimum total annual cost for the company. A) Running the purchasing processes independently (as in the current practice). B) Purchasing both products together once a month 50,000 25 490 80,000 20 620

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