It is forecasted that the demand on product B in 2015 is 3000 units. To produce a unit of product B, it requires 2 units of material K. Material K is supplied by a vendor. The order cost is 100 USD per order. The purchasing price of a unit of material K is based on the quantity of an order and given as follows

Quantity____________ Purchasing price (USD/unit)

0 – 1499………………………………………….12

1500 – 2999……………………………………...10

? 3000……………………………………………..8

The annual holding cost is estimated as 5 % of purchasing cost.

What is the optimal order quantity to minimize the total of holding and ordering costs? How many orders should be made this year?

Answer rating: 100% (QA)

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