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Question
The Bellevue University bookstore purchases sweatshirts with the school name and logo from a vendor. The vendor sells the sweatshirts to the store for $38 per shirt. The cost to the bookstore for placing an order is $150 and the annual carrying cost is 25 percent of the cost of a sweatshirt. The bookstore manager estimates that 2,000 sweatshirts will be sold during the year. The vendor has offered the bookstore the following volume discount schedule:
Order Size 1-150 151-599 600-799 800+
Discount 0% 2% 4% 4.5%
1. What is the bookstore's optimal order quantity given this quantity discount information? Why?
2. What will be its annual inventory cost (including the holding cost, ordering cost and cost of the sweatshirts) for this optimal order quantity?
3. What is the lowest total annual inventory cost (as defined in b) for each of the other price (equivalently discount) options?
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