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Shoe Shine: What is the carrying cost and the optimal order quantity?

Shoe Shine is a local retail shoe store located at 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 the time. John estimates that the ordering cost is $10 per order. The cost of the sandals 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?

Solution Preview

D =Total demand= 500 pairs per year
S = ordering cost=$10 per order
H =Carrying cost=? ...

Solution Summary

Solution provides step by step formula, calculations and answers in order to determine carrying cost and optimal order quantity.