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?
$$\begin{array} {| l | l | l | l | } \hline \text { Quantity } & 1 \text { to } 49 & 50 \text { to } 249 & 250 \text { and up } \\\hline \text { Price } & \$ 5.00 \text { per unit } & \$ 4.50 \text { per unit } & \$ 4.10 \text { per unit } \\\hline\end{array}$$

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Definitions:

Sherman Act

is a foundational antitrust law in the United States aimed at preserving competition by prohibiting monopolies, cartels, and other forms of anticompetitive practices.

Restraint Of Trade

Legal doctrine that restricts the ability for parties to freely conduct business, often related to antitrust issues and competition law.

Tying Contract

A sales agreement that requires the buyer to purchase another product or service, distinct from the product or service of interest.

Federal Trade Commission Act

A United States law established in 1914 to promote consumer protection and eliminate and prevent anticompetitive business practices.