A manager just received a new price list from a supplier. It will now cost $1.00 abox for order quantities of 801 or more boxes, $1.10 a box for 200 to 800 boxes, and$1.20 a box for smaller quantities. Ordering cost is $80 per order and carryingcosts are $10 per box a year. The firm uses 3,600 boxes a year. The manager hassuggested a "round number" order size of 800 boxes. The manager's rationale is that with a U-shaped cost curve that is fairly flat at its minimum, the difference intotal annual cost between 800 and 801 units would be small anyway.
How wouldyou reply to the manager's suggestion?
What order size would you recommend?