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What is optimal order quantity

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The xyz Machine Tool Company orders a particular part from Mr. FWT Sammy, an outside supplier. Demand for the part is constant during the year with an annual demand of 2000 units. Thomas Lee's ordering cost is $30, and its inventory carrying percentage is 25%. The part cost $4 plus the shipping charge (Note: the inventory carrying percentage applies to the actual cost but not the shipping cost of the part). Suppose that the shipping charge is $0.5 per part if 250 (or fewer) parts are ordered, and for shipments above 250 parts, a fixed charge of $500 is imposed. For example, if the order quantity is 100 then the shipping charge is $50 and if the order quantity is 251 then the shipping charge is $500. What is xyz's optimal order quantity? Justify your answer.

Reference no: EM131714807

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