(Answered) : Determine the optimal order quantity for a purchased part having the following characteristics: The annual demand is 20,000 u

Determine the optimal order quantity for a purchased part having the following characteristics:

The annual demand is 20,000 units.

Cost of processing each purchase order is $22.

The Annual inventory carrying cost rate is 0.2.

The unit price schedule is:

For an order of 1 to 499 unties $3.00 each.

For an order of 500 to 1,999 units $2.95 each.

For an order of 2,000 or more $2.90 each.

Expert Answer

The working is done as under :
https://d2vlcm61l7u1fs.cloudfront.net/media%2F7c8%2F7c8d8fbc-feed-41a5-ac5d-d287f3af9423%2Fphpn6LWXr.png
So, depending on the lower total cost at 2000 units ordering level, we can conclude that the optimal order quantity = 2000 units.