Minimize total annual costs of holding-ordering

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Reference no: EM132237722

You need to buy raw materials for your production process. You use 2,000 units of the raw material each year. The supplier quotes you a price of $9.50 per unit for an order size of 499 units or less, a price of $9 per unit for orders of 500 to 1499 units, and a price of $8.50 per unit for an order of 1,500 or more units. You assign an annual holding cost of 30 percent of the price of the unit to this inventory. Assume ordering cost is $60/order. What order quantity would you use if the objective is to minimize total annual costs of holding, ordering, and purchasing (be sure to identity total costs of 3 options)?

Reference no: EM132237722

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