A flower shop is trying to determine the optimal order quantity of the

A flower shop is trying to determine the optimal order quantity of the wicker baskets that it places many of its
arrangements in. The store thinks it will sell 2000 of these baskets over the next year. The baskets cost the shop
$2.00 each.

The carrying cost of the baskets is $0.15 each per year. It costs the shop $8.00 to order.
a. What is the economic order quantity?
b. What is the total cost for ordering the baskets once a year? Four times a year?

ANSWER

a. Q* = 2SO
C =
2(2000)8
.15 = 462 units
b. total cost: (Q/2)C + (S/Q)O
ordering once: (2000/