A neighborhood sportswear store sells a pair of Nike sneakers for $40. Due to the recent fitness craze, these shoes are in high demand: 50 pairs of shoes are sold per week. The ordering cost is $20/order, and the annual holding cost is 20 percent of selling price. If the store operates 52 weeks a year, what can you say about the current lot size of 235?

Question

Quizplus · Accepted Answer

The Economic Order Quantity (EOQ) model can be used to determine the optimal lot size. The EOQ formula is: EOQ = sqrt((2 * Demand * Ordering Cost) / Holding Cost). Here, Demand = 50 pairs/week * 52 weeks = 2600 pairs/year, Ordering Cost = $20, and Holding Cost = 20% of $40 = $8. Plugging these into the EOQ formula gives EOQ = sqrt((2 * 2600 * 20) / 8) = sqrt(13000) ≈ 114. The current lot size of 235 is much larger than the EOQ, indicating it is too large.

A Neighborhood Sportswear Store Sells a Pair of Nike Sneakers