A retailer is making decision to procure a branded winter jacket after observing the initial
sales for a winter season. Assume the winter season consists of four-month period. The
retailer sells an average of 1600 jackets a season.
Preparing an order and receiving a shipment of winter jacket involves a cost of $800 per
order. The purchasing price of the jacket is $32 and the annual (inventory) carrying cost of
the jacket is 25% of the purchasing price.
Hints: Holding cost per season = [(25%) × (item cost) × (months in a season)]/(no of
months in a year)
(a) Assuming four-month winter season, what is the unit carrying cost of jackets for the
season?
H = [$_______ × 25%/12] × (4 month/season) = $_________ per season
(b) Using carrying cost determined by (a), what is the economic order quantity.
(c) Compute total cost comprising the cost of ordering & carrying cost.
(d) If ordering costs were to increase by $100 per order, how much would that affect
the total cost?