Machey’s Department Store sells 1200 cameras per year, and the demand pattern throughout the year is very steady. The store orders its cameras from a regional warehouse, and it usually takes a week...

Machey’s Department Store sells 1200 cameras per year, and the demand pattern throughout the year is very steady. The store orders its cameras from a regional warehouse, and it usually takes a week for the cameras to arrive after an order has been placed. Each time an order is placed, an ordering cost of $125 is incurred. The store pays $100 for each camera and sells them for $130 apiece. There is no physical storage cost, but the store’s annual cost of capital is estimated at 8% per year—that is, it can earn 8% on any excess cash it invests. The store wants to determine how often it should order cameras, when it should place orders, and how many cameras it should order in each order.

Objective To determine when to order and how much to order so that the store never runs out of cameras and profit is maximized.