Reference no: EM133234195

Akimbo, a traditional haberdashery located in the famed French Quarter district of New Orleans, Louisiana, caters primarily to tourists who wish to take a souvenir of the Old South home with them after their visit. One of its most popular items is a bow tie covered in fleurs-de-lis, the traditional symbol of New Orleans. The store sells an average of 500 bow ties per month for $39.99 each and purchases them from a local supplier for $20. The supplier charges a $50 delivery fee for each order that Akimbo places, regardless of its size, and the store estimates that its annual cost of carrying inventory is 25% of the value of the item. The store has been using a policy of placing orders to the local supplier every two months. Recently, however, the manager has suspected that this policy carries an unnecessarily high cost.

a. Determine the total annual relevant cost of the store's current policy.

b. Identify the optimal ordering policy, and estimate the annual savings that would result from its implementation.