Skatz Company is one of the leading manufacturers of roller blades. In their plant, they do assembly only, and all components are purchased from external suppliers. They are unhappy now with their current supplier of rollers and decided to find a new source for their top-of-the-line model. The demand is 400,000 rollers per year, and they received different price schedules from three different suppliers.
Supplier A gave a flat rate of $3 per roller regardless of the quantity ordered.
Supplier B provided the following all units discount price schedule: $3.25 per roller if the order quantity is less than 5000, $3.00 per roller if the quantity is 5000 or more but less than 15,000, and $2.60 per unit for any quantity beyond 15,000.
Supplier C offered a price of $3.25 if the order quantity is less than 10,000 and $2.80 per roller for each unit purchased beyond 10,000, using incremental discount.
All three suppliers have the same roller quality. The order cost is $150, and inventory holding cost is taken to be 30 percent annually. Evaluate the optimal quantity to be ordered.