Question: Victor sells a line of upscale evening dresses in his boutique. He charges $300 per dress, and sales average 30 dresses per week. Currently, Victor orders a 10-week supply at one time from the manufacturer. He pays $150 per dress, and it takes 2 weeks to receive each delivery. Victor estimates his administrative cost of placing each order at $225. Because he estimates his cost of capital at 20%, each dollar’s worth of idle inventory costs him $0.20 per year.

(a) Compute Victor’s total annual cost of ordering and carrying inventory.

(b) If Victor wishes to minimize his annual cost, when and how much should he order in each batch? What will be his annual cost?

(c) Compare the number of inventory turns under the current and proposed policies.