Betty’s Shoe Shop sells of 6000 pairs of a particular brand of shoe every year. Each time an order is placed, an ordering cost of $30 is incurred. A pair of these shoes costs $200 and the annual holding cost for a single pair is 25% of the cost of a pair. Assuming no shortages are allowed, determine the following.
(a) How many pairs of shoes should be ordered each time an order is placed?
(b) How many orders should be placed each year?
(c) What is the total annual inventory cost?
(d) What is the cycle length?
(e) What would the reorder point be if the lead time is one week? (Assume that there are 52 weeks in a year)
(f) The manager has determined that there is shortage cost of $15 per pair of shoes. Should the manager allow shortages?