Question: The bookstore at Venn College buy sport shirts with the college logo to sell from a local vendor. The vendor sells the sport shirts to the college for dollar 38 each. The rate to the bookstore for placing each order is $120. The carrying cost is dollar 5.20 per shirt per year. The bookstore estimates that 1700 sport shirts will be sold over the next year & does not want any shortages. The bookstore sells the shirt for dollar 50 each. There are 260 business days a year for the bookstore. Lead time for filling an order once placed is two weeks. The vendor has offered the College Bookstore the given discounts:
|
Order Size
|
Discount
% of Order
|
Cost of Shirts from Vendor
|
|
1-299
|
0% discount
|
$38
|
|
300-499
|
2% discount
|
$37.24
|
|
500-799
|
4% discount
|
$36.48
|
|
800+
|
6% discount
|
$35.72
|
Suppose the local vendor eliminates its discounts & charges a flat rate of 35 dollar per shirt. The bookstore is considering allowing backorders if it is beneficial to do so. They estimate their shortage cost per shirt to be dollar 7.50. Should the bookstore allow shortages? Explain your answer.