Question

Bell Computers purchases integrated chips at $350 per chip. The holding cost is $33 per unit per year, the ordering cost is $122 per order, and sales are steady, at 395 per month. The company's supplier, Rich Blue Chip Manufacturing Inc., decides to offer price concessions in order to attract larger orders. The price structure is shown below.

Quantity Purchased
1-99 units= $350 price/unit
100-199 units= $325 price/unit
200 or more units= $300 price/unit

a) What is the optimal order quantity and the minimum cost for Bell Computers to order, purchase, and hold these integrated chips?

b) Bell Computers wishes to use a 10% holding cost rather than the fixed $35 holding cost in part a. What is the optimal order quantity and what is the optimal cost?

Answer 1