Question

Addidas sells a pair of sneakers for $40. Due to the recent fitness craze, these shoes are in high demand: 45 pairs of shoes are sold per week. The ordering cost is $40 per order, and the annual holding cost is 20 percent of the selling price. If the store operates 50 weeks a year, how much extra the company spend on total cost if the current order quantity is 250 pairs? OLN.

Answer 1

selling price= $40 per pair

annual holding cost per pair= 20% of ($40)= $8

Ordering cost, S= $40

Weekly demand= 45 pairs

Number of weeks store operates in a year= 50

Annual demand, D= 50*45 = 2250 pairs

economic order quantity=

=

=150

Total cost on inventory= annual holding cost+ annual ordering cost

= (Q/2)H + (D/Q)S

= (150/2)*8+(2250/150)*40 = 600+600= $1200

Current order quantity= 250 pairs

Total inventory cost = (250/2)*8+ (2250/250)*40 = 1000+360 =$1360

Extra money company is spending on total cost= total cost for ordering current quantity- total cost if eoq is ordered

= 1360-1200 = $160