The Annual Demand, Ordering Cost, and the Inventory Carrying Cost

question 113

Essay

The annual demand, ordering cost, and the inventory carrying cost rate for a certain item are D = 600 units, S = $20/order and I = 30% of item price. Price is established by the following quantity discount schedule. What should the order quantity be in order to minimize the total annual cost?
$$\begin{array} {| l | l | l | l | } \hline \text { Quantity } & 1 \text { to } 49 & 50 \text { to } 249 & 250 \text { and up } \\\hline \text { Price } & \$ 5.00 \text { per unit } & \$ 4.50 \text { per unit } & \$ 4.10 \text { per unit } \\\hline\end{array}$$

---

Definitions:

D Credit Rating

A rating indicating that an entity is in default, having failed to fulfill its credit obligations, the lowest possible rating in assessments of credit risk.

Credit Rating

A formal assessment of an entity's ability to repay its debts, often in the form of a letter grade.

Term Structure

The relationship between interest rates or yields and different maturities for debt securities, often depicted as a yield curve.

Interest Rates

The percentage charged on borrowed money, reflecting the cost of borrowing or the rate earned on investments.