Lenovo needs to procure six-core processors for the manufacture of its laptops. The company requires these processors at a fairly flat rate of 100 per month. They have to decide between three sourcing options for these processors: 

Supplier A, 

Supplier B, 

In-house production.

1. 
   Supplier A offers a full-unit discount plan for its processors: $99 per processor if order size is less than 500, order size $99 per processor between 500 and 999, and $98 per processor if order size is greater than 999. The order setup cost this supplier is charging is $500.
2. 
   
3. Supplier B offers an incremental discount program for its processors: it charges $100 If order size is less than or equal to 400, $96 per processor is purchased if  order size is between 401 and 800, and $92 for each processor is over 400 purchased Over 800 purchased. The order setup cost required by this supplier is $300. 
4. 
   
5. For the in-house production option, the cost of starting a production run is $750, and each processor costs the company $100 to manufacture. The company has the capacity to produce 250 processors per month. Inventory holding costs are based on an annual interest rate of 20 percent.

 Calculate the optimum total annual cost for each option. which option should the company choose?

Answer rating: 100% (QA)

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