### Annual inventory cost under the optimal inventory policy

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Inventory Management, EOQ In 2014, BabyStuff, a fictional U.S. manufacturer of children's apparel has an average inventory of around \$350,000,000, and the cost of goods sold is around \$1,050,000,000. A Boston branch of the BabyStuff is striving to improve its inventory management. The store estimates that its weekly sales are 1,600 units. Each order costs a fixed administrative expense of \$4,000. Assume that there is no seasonality and the lead time is zero. Holding costs are 10% of inventory cost per week,

a. Suppose that the Boston store follows an inventory policy such that its inventory turnovers are the same as the company’s. What order quantity would BabyStuff’s Boston store choose? What would be the Boston store’s total annual inventory cost at this order quantity?

b. The Boston store estimates that its weekly sales are 1,600 units and each unit costs \$8. Determine the store’s weekly optimal ordering quantity and the store’s annual inventory cost.

c. What is the store’s annual inventory cost under the optimal inventory policy? To what extent has your calculated optimal inventory policy reduced the store’s inventory costs?

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