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Assume that you’re the manager of production department that employs 400 boxes of rivets per year. The supplier quotes you price of $8.50 per box for the order size of 199 boxes or less, a price of $8.00 per box for orders of 200 to 999 boxes, and price of $7.50 per box for order of 1,000 or more boxes. You allocate a holding cost of 20 percent of price to this inventory. What order quantity would you employ if the objective is to reduce total annual costs of holding, purchasing, and ordering? Suppose ordering cost is $80/order. D = 400 boxes per year S = $80 H = .20P Range P H Qo 1 – 199 $8.50 $1.70 194 200 – 999 $8.00 $1.60 200 1,000 + $7.50 $1.50 207 the total cost of 1,000.

Operation Management, Management Studies

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