Problem:
A company will begin stocking remote control devices. Expected monthly demand is 800 units. The controllers can be purchased from either supplier A or supplier B. Their price lists are as follows.
Supplier A
Quantity/Unit Price
1-199 / $14
200-499 / $13.80
500+ / $13.60
Supplier B
Quantity/Unit Price
1-149 / $14.10
150-349 / $13.90
350+ / $13.70
Ordering cost is $40 and annual holding cost is 25% of unit price per unit. Which supplier should be used and what order quantity is optimal if the intent is to minimize the total annual cost?