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Emery Pharmaceutical uses an unstable chemical compound that must be kept in an environment where both temperature and humidity can be controlled. Emery uses 800 pounds per month of the chemical, estimates the holding cost to be 50% of the purchase price (because of spoilage), and estimates order costs to be $50 per order. The cost schedules of two suppliers are as follows:
Vendor I
Vendor 2
Quantity
Price/Ib
Price/lb
1-499
$17.00
1-399
$17.10
500-999
1625
400-799
1285
1,000+
16.50
800-1,199
16.60
1,200+
16.25
a) What is the economic order quantity for each supplier?
b) What quantity should be ordered, and which supplier should be used?
c) What is the total cost for the most economic order size?
d) What factor(s) should be considered besides total cost?
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