When making their suits to sell to the public. Armani Exchange has a choice of different types of cloth to use. All types of cloths have the same performance and are purely based on the amount Armani wants to order. Cloth type A costs $50/unit, with no restriction on the number of units to purchase. Cloth Type B cists $30/unit, and Armani will have to order at least 10,000 units to get this price. Cloth Type C costs $25/unit, and Armani will have to order at least 10,300 units to get this price. Assume an order setup cost of $10,000 and an annual requirement of 20,000 units of cloth. Also, assume a 15% annual interest rate for holding cost calculations. What type of cloth should Armani order, and how many units should they order?

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To determine the optimal type of cloth for Armani to order and the quantity we need to compare the t... View the full answer