A college bookstore is attempting to determine the optimal order quantity for a popular book on psychology. The store sells 5,000 copies of this book a year at a retail price of $12.50, and the cost to the store is 20 percent less, which represents the discount from the publisher. The store figures that it costs $1 per year to carry a book in inventory and $100 to prepare an order for new books.
a. Determine the total inventory costs associated with ordering 1, 2, 5, 10, and 20 times a year.
b. Determine the economic order quantity.
c. What implicit assumptions are being made about the annual sales rate?