Steve's shop sells seashells by the seashore.Steve buys shells from local collectors for an average price of $0.50 per shell.Steve sells on average 1,000 shells each month.Each time he orders shells from collectors,there is a $20 shipping and handling fee.Steve estimates a unit holding cost of $0.50 per shell per year (many of them get broken if held in inventory too long).How often should Steve order seashells?

Question

Quizplus · Accepted Answer

Steve sells on average 1,000 shells each month, so he should order shells at least once a month to maintain his inventory levels. Ordering more frequently than once a month would lead to unnecessary shipping and handling costs. Ordering less frequently than once a month would require Steve to hold onto shells for longer periods, increasing the risk of breakage and the associated holding cost. Therefore, the best choice is to order shells about one time each month.

Steve's Shop Sells Seashells by the Seashore