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Garden variety flower shop uses 750 clay pots a month. the pots are purchased at $2 each. Annual carrying costs per pot are estimated to be 30 percent of cost, and ordering costs are $20 per order. The manager has been using an order size of 1500 flower pots.
a. What additional annual cost is the shop incurring by staying with this order size?
b. Other than cost savings, what benefit would using the optimal order quantity yield?
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