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A gift shop sells Little Lentilscuddly animal dolls stuffed with dried lentilsat a very steady pace of 10 per day, 310 days per year.
A gift shop sells Little Lentils—cuddly animal dolls stuffed with dried lentils—at a very
steady pace of 10 per day, 310 days per year. The wholesale cost of the dolls is $5, and the
gift shop uses an annual interest rate of 20 percent to compute holding costs.
(a) If the shop wants to place an average of 20 replenishment orders per year, what order
quantity should it use?
(b) If the shop orders dolls in quantities of 100, what is the implied fixed order cost?
(c) If the shop estimates the cost of placing a purchase order to be $10, what is the optimal
order quantity?
