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Demand for a cleaning item at a retailer is 1000 units per year. A processing fee of $10 will be charged for each order placed. The annual cost to carry an item in inventory is 20% of the item costs. The supplier of this cleaning item offers the following price schedule to the retailer of his item:
Order size 1-299 300+
Purchasing price $20 $19
1. What are the retailer's optimal order quantity and the total annual costs?
2. The retailer opens 250 days a year. What is the average number of days between two consecutive orders (using the order quantity you got from Question 1)?
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What would be the annual inventory holding cost?
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