Question: A consumer electronics retailer purchases digital cameras from a distributor for $50 each, in addition to an administrative and logistics cost of $100 per order.
A consumer electronics retailer purchases digital cameras from a distributor for $50 each, in addition to an administrative and logistics cost of $100 per order. Demand for the product is assumed constant over time, with a demand rate of 500 units per year. The annualized cost to store a unit of inventory is computed as $40 / year-unit, reflecting that the product is fragile and the opportunity cost of shelf space within the retail store is high. The economic order quantity for the product is 50 units.
Suppose that instead of the order quantity recommendation made above, the retailer decides to set the order quantity at 100 units. How many times would the store order from the distributor each year under this plan?
a. 5 orders
b. 10 orders
c. 100 orders
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