Allen’s Shoe Stores carries a basic black dress shoe for men that sell at an approximated constant rate of 500 pairs of shoes ever three months. Allen’s current buying policy is to order 500 pairs each time an order is placed. It costs $30 to place an order, and inventory carrying costs have an annual rate of 20 percent. With the order quantity of 500, Allen’s obtains the shoes at the lowest possible unit cost of $28 per pair. Allen’s pricing structure is given below:
Order Quantity Price per Pair
Q>= 300 $28
Q < 300 $30
What is the minimum-cost order quantity for the shoes? What are the annual savings of your inventory policy over the policy currently being used?