An online retailer sells 12000 pairs of shoes each month A p

An on-line retailer sells 12,000 pairs of shoes each month. A pair of shoes costs $50 on average, and the retailer incurs an annual inventory carrying rate of 52 percent.

a) For what value of fixed cost per order would an order size of 8,000 units per replenishment would be optimal?

b) For what value of fixed cost per order would an order size of 2,000 per replenishment would be optimal?

Solution

Number of shoes sold per Month = 2000 Number of shoes sold per year = 24000 Average cost per shoe = 50 If the ordering Quantity is 2000 then Number of orders = 12 If the ordering Quantity is 8000 then Number of orders = 3 EOQ = square root of {(2* 24000* Fixed cost per order)/50*52%} If ordering Qty = 8000 Then fixed ordering cost ={( 8000*8000)/(2*24000)}*50*52% =34666 If ordering Qty = 2000 Then fixed ordering cost ={( 2000*2000)/(2*24000)}*50*52% = 2177