Part I.

Consider the same grocery store example analyzed in class where 4200 packages of paper towels are sold each year. The fixed ordering cost for a batch purchase of paper towels is $100 and the yearly inventory holding cost is 30% of the purchase price.

Suppose that the supplier offers the following price schedule based on the all-unit quantity discount policy:

Quantity Purchased	Cost per Package
1-499	$2.55
500-999	$2.50
1000+	$2.45

What is the optimal order quantity? What is the total inventory management cost?

Part II.

Now suppose that the supplier offers the following price schedule:

Quantity Purchased	Cost per Package
1-1499	$2.55
1500-1999	$2.50
2000+	$2.45

What is the optimal order quantity? What is the total inventory management cost?

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