Chapter 12, Problem 22P

Bell Computers purchases integrated chips at $350 per chip. The holding cost is $35 per unit per year, the ordering cost is $120 per order, and sales are steady, at 400 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.

Rich Blue Chip’s Price Structure

QUANTITY PURCHASED	PRICE/UNIT
1–99 units	$350
100–199 units	$325
200 or more units	$300

1. a. What is the optimal order quantity and the minimum annual cost for Bell Computers to order, purchase, and hold these integrated chips?
2. b. Bell Computers wishes to use a 10% holding cost rather than the fixed $35 holding cost in (a). What is the optimal order quantity, and what is the optimal annual cost?