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

Answer:

The optimal order will be of 100 units

Explanation:

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

$Q_{opt} = \sqrt{\frac{2DS}{H}}$

D = annual demand 500 units

S= setup cost = ordering cost = 50.00 dollars

H= Holding Cost = 5.00 dollars

$Q_{opt} = \sqrt{\frac{2\times 500 times 50}{5}}$

EOQ = 100