Amazon wants to find the lowest overall inventory costs

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Reference no: EM132303688

Demand for phones at Amazon is 5,000 per month. The holding cost at Amazon is 25% annually and the company incurs a fixed cost per order of $500. The phone supplier offers an all unit quantity discount with a price of $200 per phone for all orders under 10,000, a price of $195 for all orders between 10,000 and 19,999, and a price of $190 for all orders of 20,000 or more.

What should be the order size if Amazon wants to find the lowest overall inventory costs? Justify your order quantity by showing the total cost for the best decision.

Suppose the price per unit for all orders of 20,000 or more is $193. Now what is the optimal order size for Amazon? What is the total cost of this order quantity?

Reference no: EM132303688

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