Ergonomics Inc. sells ergonomically designed office chairs. The company has the following information:
- Average demand 20 units per day
- Average lead time 30 days
- Item unit cost $50 for orders of less than 200 units
- Item unit cost $48 for orders of 200 units or more
- Ordering cost $25
- Inventory carrying cost 25%
- The business year is 250 days
The basic question: How many chairs should the firm order each time? Assume there is no uncertainty at all about the demand or the lead time. There are many associated questions, such as what will the firm's average inventory be under each alternative? What will be the breakdown of costs for each alternative?