A bookstore orders pennants out of a catalog from a supplier. The demand for these pennantsis 12,000 per year. There is a $25 charge for placing an order and a $10 cost per pennant to hold it in inventory for the year.
a) What is the economic order quantity?
For part b) assume prices for the pennants are based on the quantity purchased, so if less than 100 are ordered, the unit price is $2.50, if 100 to 299 are ordered, the unit price is $2.40, if 300 to 499 are ordered, the unit price is $2.30, and if 500 or more are ordered, the unit price is $2.20.
b) What order quantity will result in the lowest total annual cost to the bookstore?