Question: Annual demand for an item is 2,000 units, each order costs 10 to place and the annual holding cost is 40% of the unit cost.

Annual demand for an item is 2,000 units, each order costs £10 to place and the annual holding cost is 40% of the unit cost. The unit cost depends on the quantity ordered as follows:
For quantities less than 500, unit cost is £1
For quantities between 500 and 1,000, unit cost is £0.80
For quantities of 1,000 or more, unit cost is £0.60.
What is the best ordering policy for the item?

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