A testing lab is trying to determine how many test kits it should order from its supplier. They use 780 kits per year. The annual holding cost is $3 per kit per year. The ordering cost is $15 per order. The supplier offers a quantity discount.

a) Draw the Order quantity (Q) verses Total Annual Cost graph with 3 item prices (as shown in Figure 12.7). (Please show how you make the graph)

b) What is the optimum buying condition (Price and Quantity)?

c) What is the total cost (holding cost + ordering cost + material cost) at optimum condition?

Quantity	Price
1-72	$60
73-144	$56
145 and more	$53

FIGURE 12-7 Quantity discount total annual cost with constant holding cost TC ($60) Investigate these two quantities, 89 and 145 Total Annual Costs 48000 47500 47000 46500 46000 45500 45000 44500 44000 43500 43000 42500 42000 41500 0 0 TC ($56) TC ($53) 20 40 60 160 180 200 80 100 120 140 Order Quantity