Allen’s Shoe Stores carries a basic black dress shoe for men that sells at an approximate constant rate of 500 pairs of shoes every three months. Allen’s current buying policy is to order 500 pairs each time an order is placed. It costs $30 to place an order, and inventory-carrying costs have an annual rate of 20 percent. With the order quantity of 500, Allen’s obtains the shoes at the lowest possible unit cost of $28 per pair. Other quantity discounts offered by the manufacturer are listed below:

What is the minimum-cost order quantity for the shoes? What are the annual savings of your inventory policy over the policy currently being used?

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Order Quantity 0-99 100-199 200-299 300 or more Price Per Pair $36 $32 $30 $28