1. a. Pat's Yard Bags Inc. sells garbage bags to institutional customers. They are known for high quality, affordable, large trash bags. They have a pricing policy involving quantity discounts as follows: For orders of 499 bags or less they charge 30 cents per bag. For orders of more than 500 but less than 1,000 bags they chage 29 cents per bag. For orders of 1,000 bags or more they charge 28 cents per bag. Assume that demand is for 600 bags per year, there is a cost of $8 per order, and that you have an internal interest rate of 20%. Calculate the optimal order quanity for orders less than 500 bags.
b. Using the details of the previous question, what is the optimal number to order if you are going to order between 500 and 999 bags?
(HINT: Recalculate the EOQ assuming you get the discounted price. If the order quantity is in the proper range, between 500 and 999 then that is your EOQ for that range. If the order quantity is less than 500 then order the minimum number needed to trigger the discount)
c. Using the previous problem, what is the optimal order quantity if you are going to order 1,000 or more bags per order?
d. Using the previous problems ("Pat's Yard Bags"), calculate the total cost of the overall optimal ordering quantity (including material costs). (remember, do not enter a dollar sign in your answer! Do include cents in your answer)