Allen´s Shoe Store carries a basic black dress shoe for men that sells at an approximate constant rate of 500 pairs of shoes every 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 holding 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 $28 per pair. Other quantity discounts offered by the manufacturer are listed below:
Order Quantity Price Per Pair ($)
0-99 36
100-199 32
200-299 30
300 or more 28
What is the minimum-cost order quantity for the shoes? What are the annual savings of your inventory policy
over the policy currently used?