A neighborhood sportswear store sells a pair of Victoria 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 per order,and the annual holding cost is 20% 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. Calculating EOQ gives approximately 114 pairs, which is less than the current lot size of 235, indicating the current lot size is too large.

A Neighborhood Sportswear Store Sells a Pair of Victoria Sneakers