A haberdashery orders ties from manufacturers overseas to satisfy their demand rate of 5,000 units per year that has been stable for the past decade. Placing an order costs 15 euro and holding each cravat in inventory for a year costs 2 euro. The manufacturer offers price breaks for large orders: ordering between 1 and 99 cravats earns the haberdashery a price of 3.5 euro, but ordering 100 to 999 carries a 3.4 euro price. An order of 1000 cravats or more drops the price to 3.3 euro. What's the optimal order quantity for the haberdashery?

Question

Quizplus · Accepted Answer

The optimal order quantity can be determined using the Economic Order Quantity (EOQ) formula: EOQ = sqrt((2DS)/H), where D is the demand rate, S is the ordering cost, and H is the holding cost per unit per year. Plugging in the values: EOQ = sqrt((2*5000*15)/2) = sqrt(75000) ≈ 274. This falls within the 100 to 999 cravats price break, making it the optimal order quantity.

A Haberdashery Orders Ties from Manufacturers Overseas to Satisfy Their