Question: Shoes R Us is a local shoe store located in Camden. Annual demand for a popular sandal is 1,000 pairs of sandals, and Gary Cole, the owner of Shoes R Us, has been in the habit of ordering 200 pairs of sandals at a time. Gary estimates that the ordering cost is $20 per order. The cost of a pair of sandals is $10.
(a) For Gary's ordering policy to be correct, what would the carrying cost have to be as a percentage of the unit cost?
(b) If the carrying cost were 20% of the unit cost, what would be the optimal order quantity?