Question

The manager of a book store at City College purchases T-shirts from a vendor at a cost of $25 per shirt. The bookstore incurs an ordering cost of $100 per order, and the annual holding cost is 18% of the purchase cost of a T-shirt. The store manager estimates that the demand for T-shirts for the upcoming year will be 1,800 shirts. The store operates 50 weeks per year, five days per week.

The vendor is willing to offer quantity discounts to the bookstore according to the following schedule:

Order Quantity	Discount
0 to 499	0%
500 to 799	2%
700 to 999	3%
1,000 +	4%

a. Determine the optimal order quantity and the total annual inventory cost.

Answer 1

Therefore, the optimum order quantity is 1000 units as at this level of ordering the total annual materials cost is lowest to the extent of $47,268. At this level, both the materials carrying cost and the ordering costs are lowest also.

** Please feel free to ask me if any more explanations are required. Thank You..!!