Suppose that your company supplies toothpaste to Wal-Mart, and they are your only customer. Wal-Mart orders its EOQ of 1,000 tubes each time they order. The annual demand for these tubes is 40,000 units. Your setup cost is $100 per order, and your annual holding cost is $0.50 per unit. What is your optimal order quantity and 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?
The associated annual total cost?