Gopher Bookstores is a local bookstore selling textbooks and stationary items. The demand for spiral-binded notebooks at the store is constant at 5000 notebooks/year. It purchases the notebooks from a supplier at $1.50 per notebook. Each time Gopher Bookstores places an order it incurs an ordering cost of $50. The company estimates that the yearly holding cost of inventory is 18% of the unit purchasing cost. Gopher Bookstores needs your help in determining the optimal ordering policy.
a. Determine the Economic Order Quantity, the time between placement of orders and the total annual cost (i.e., sum of holding and ordering costs) incurred by Gopher Bookstores.
b. Determine the reorder point assuming the order lead time is 5 workdays and Gopher Bookstores operates 250 days a year.
c. Suppose that the supplier is a wholesale seller and requires orders to be placed only in multiples of 500 notebooks. How much additional total variable annual cost would Gopher Bookstores incur to meet this requirement?