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Design Galore currently sells polo shirts for $1,875 which includes a margin of 20%. Each order is placed by a single individual that charges
Design Galore currently sells polo shirts for $1,875 which includes a margin of 20%. Each order is placed by a single individual that charges an average rate of $405 per hour. To file the paper works as well as to make the necessary telephone calls to the supplier takes an average of five hours. The cost of holding each unit of inventory is 2% of the unit price of the shirts. Currently, the company orders 37,500 shirts quarterly. However, management was advised that if the current order size is doubled, the entity stands to benefit from a 3% discount. However, if the current lot size is tripled; the company receives a 7% discount. Meanwhile, a 10% discount is to be received if management purchases four times the current lot size. All orders are done in a single batch and are made instantaneously. Management now wants to know the company's optimal order quantity. Required: 1. Calculate the EOQ based on the formula. (3 marks) 2. Calculate the total cost based on the EOQ. (3 marks) 3. Calculate the total cost for each individual alternate order quantity including the current policy. (15 marks)
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