A manager just received a new price list from a supplier. It will now cost $1.00 a box for order quantities of 801 or more boxes, $1.10 a box for 200 to 800 boxes, and $1.20 a box for smaller quantities. Ordering cost is $80 per order and carrying costs are $10 per box a year. The firm uses 3,600 boxes a year. The manager has suggested a "round number" order size of 800 boxes. The manager's rationale is that with a U-shaped cost curve that is fairly flat at its minimum, the differ- ence in total annual cost between 800 and 801 units would be small anyway. How would you reply to the manager's suggestion? What order size would you recommend?

A manager just received a new price list from a supplier. It will now cost $1.00 a box for order quantities of 801 or more boxes, $1.10 a box for 200 to 800 boxes, and $1.20 a box for smaller quantities. Ordering cost is $80 per order and carrying costs are $10 per box a year. The firm uses 3,600 boxes a year. The manager has suggested a "round number" order size of 800 boxes. The manager's rationale is that with a U-shaped cost curve that is fairly flat at its minimum, the differ- ence in total annual cost between 800 and 801 units would be small anyway. How would you reply to the manager's suggestion? What order size would you recommend?

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

Section: Chapter Questions

Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...

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