Demand for phones at an on-line retailer is 5,000 per month. The annual inventory carrying rate for the retailer is 25 percent, and the retailer incurs a fixed order cost of $15,000 for each order placed with the supplier in Taiwan. The supplier offers a price of $100 per phone for any order that is strictly less than 5,000 phones in the order, a price of $95 if the order size is greater than or equal to 5,000 but strictly less than 10,000 phones in the order and a price of $90 if the order size is greater than or equal to 10,000.
a) How many phones should the retailer order per replenishment if an all-units discount policy is in effect? And, what is the associated average total annual cost?
b) How many phones should the retailer order per replenishment if an incremental units discount policy is in effect? And, what is the associated average total annual cost?