NAME: ________________________________

1. ABC Shoe store carries a basic black dress shoe for men that sells at an
approximate constant rate of 500 pairs of shoes every three months. It costs the
company $30 to place an order. The annual holding cost rate is 75 percent. If the
supplier gives a quantity discount, what order quantity would you recommend
ABC Shoe store to take?
Discount Category

Unit Cost

Order Size

Unit Cost

<75

$30

76 299

$29.75

>300

$29.25

Order
Quantity

Annual
Holding
Cost

Annual
Ordering
Cost

$30
$29.75
$29.25

Order quantity that ABC Shoe store should adhere to:

Q* = SQRT(2DCo/Ch) or Q* = SQRT(2DCo/IC)
TC = (Q*Ch)/2 + (DCo)/Q* + DC

Annual
Purchase
Cost

Total Cost