Question

Shoe Shine is a local retail shoe store located on the north side of Centerville. Annual demand for a popular sandal is 500 pairs, and John Dirk, the owner of Shoe Shine, has been in the habit of ordering 100 pairs at a time. John estimates that the ordering cost is $10 per order. The cost of the sandal is $5 per pair. For John's ordering policy to be correct, what would the carrying cost as a percentage of the unit cost have to be? If the carrying cost were 10% of the cost, what would the optimal order quantity be?

Answer 1

The optimal order will be of 100 units

Step-by-step explanation:

We will solve this using the EOQ (economic order quantity) formula:

`Q_(opt) = \sqrt{(2DS)/(H)}`

D = annual demand 500 units

S= setup cost = ordering cost = 50.00 dollars

H= Holding Cost = 5.00 dollars

`Q_(opt) = \sqrt{(2* 500 times 50)/(5)}`

EOQ = 100