A manufacturer is sourcing a component for a new product. Expected monthly demand is 705 units. The component can be purchased from either supplier A or supplier B, with the following price breaks:
SUPPLIER A SUPPLIER B
Quantity Unit Price Quantity Unit Price
1–199 $14.00 1–149 $14.10
200–499 13.80 150–349 13.90
500 + 13.60 350 + 13.50
Ordering cost is $39 and annual holding cost is 25 percent of unit price per unit.
a. Which supplier should be used?
b. What order quantity is optimal if the objective is to minimize total annual costs?
c. What is the minimum total annual cost?