A local furniture store sells beds as well as other furniture and accessory items. Their best-selling bed has an annual demand of 400 units. Each time they place an order for the beds, they incur a cost of $40.00 and the annual cost for carrying the beds in inventory is $5.00 per unit.
a) To minimize the total cost, how many units should be ordered each time an order is placed?
b) If the holding cost per unit was $6.00 what would be the optimal order quantity?
c) There is heavy completion in the local market for beds. The local furniture store wants to be sure to never run out of their best-selling bed. What would be the additional annual cost if the furniture store ordered 90 beds each time they placed an order at the original holding cost?