You have recently been hired as a purchasing coordinator. Your primary product has an annual demand of 3,000 units, and you sell the product for $100 per unit. Before you arrived shortages (or backorders) were not allowed, but management would like to see how inventory decisions would change if shortages were allowed. They are assuming that they can offer a 15% discount to any customer who has a backorder to prevent them from purchasing the product elsewhere. Your company purchases the product from a wholesaler, and it costs $40 to process the order, and the annual holding cost is $2 per unit per year.
If shortages are allowed, how many units should be ordered each time that an order is placed?
An order should be placed when the total number of backorders sums to what?