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A grocery store orders paper grocery bags from a distributor. The store uses 2,300 cases of bags per year, and its ordering cost is $65 per order. The store's carrying cost rate is 35% of the price per case of bags. The distributor has the following pricing structure for cases of bags:
Order Quantity (Number of cases)
Price per case
1-49
$129.45
50-249
$127.95
250-999
$126.45
1000 and over
$125.95
a) How many cases of bags should the store order each time if we want to select the lowest total annual cost strategy (ordering cost plus holding cost plus material acquisition cost)?
b) What is the resulting total cost per year (ordering cost plus holding cost plus material acquisition cost) for this strategy and the next lowest cost strategy?
c) If the store has only enough storage space for 200 cases of bags, how many should it order each time? Why?
If a calculated order quantity is a fraction of a case, leave it as a fractional amount.
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