# The bike shop estimated that they will require 1700 bicycles over the next year. administrative and other

## Question:

The bike shop estimated that they will require 1700 bicycles over the next year. administrative and other costs associated with placing an order are estimated to be $54 per order. the bike shop uses a rate of 10% of the purchase price per year for calculating inventory costs.

The bike shop supplier encourages its customers to order in large quantities by offering a price break on volume. hence, the price per bag on the order quantity as follows

order size | price per bag |

0-199 | 35 |

200-399 | 33 |

400+ | 30 |

a. determine the optimal order quantity based on the above information

b. determine the reorder point

c. on average, how many orders should the firm place per year?

d. what is the annual cost of processing the purchasing orders (ordering costs)?

e. calculate the total annual cost (TC)

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