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Question - Filter Company is a distributor of air filters to retail stores. It buys its filters from several manufacturers. Filters are ordered in lot sizes of 10,000, and each order costs Kshs 400 to place. Demand from retail stores is 200,000 filters per month, and carrying cost is Kshs 10 a filter per month.
a. What is the optimal order quantity with respect to so many lot sizes (that is, what multiple of 1,000 units should be ordered)?
b. What would be the optimal order quantity if the carrying cost were cut in half to Kshs 5 a filter per month?
c. What would be the optimal order quantity if ordering costs were reduced to Kshs 100 per order?
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