Question: 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,

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 offer price concessions in order to attract larger orders. The price structure is shown below.

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

Rich Blue Chip’s Price Structure

Quantity Purchased Price/Unit

1-99 units ...........$350

100-199 units ........$350

200 or more units ........$350

(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?

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