Quantity Discounts
The UWM Bookstore orders coffee mugs out of a catalog from a supplier. The demand for these coffee mugs is 1,849 per year. There is a $45 charge for placing an order and the cost per coffee mug to hold it in inventory for the year is $2.50.
a- What is the economic order quantity?
For part b) assume the cost of the coffee mugs are based on the quantity ordered at one time. If less than 200 are ordered, the unit price is $7.25, if 200-499 are ordered the unit price is $7.00, if 500 to 999 are ordered, the unit price is $6.95, and if 1000 or more are ordered the unit price is $6.75.
b- What order quantity will result in the lowest total annual cost to the UWM Bookstore? Be sure to show your work for full credit.