QM-670 Decision Theory Exam 2-question

1. Kelvin Shoe Stores carries a basic black dress shoe for men that sells at a rate of 500 each quarter. Their current policy is to order 500 per quarter, with a fixed cost of $30/order. The annual holding cost is 20% of the cost of items held. The following cost structure is applicable:

For a price of $35, the optimal order quantity (ignoring the price breaks) is ___________. (4)

• Redo #1 if they allow backordered items with a shortage cost of $4/year.

Optimal order quantity = ___________. (4)

2. Kelvin Shoe Stores carries a basic black dress shoe for men that sells at a rate of 500 each quarter. Their current policy is to order 500 per quarter, with a fixed cost of $30/order. The annual holding cost is 20% of the cost of items held. The following cost structure is applicable:

The optimal order quantity is ______________. (5)