Problem:
A large medical clinic uses 500 cases of floor polish per year. Purchases are made at an ordering cost of $15 per order. Inventory carrying cost is 20% per year. The price schedule, which includes the transportation cost, shows that orders of less than 50 cases will cost $49.95 per case; between 50-79 cases will cost $44.95 per case; and 80+ cases will cost $39.95 per case. Prices apply inclusively to all units bought.
Required:
Question 1) What is the optimum purchase order size that should be placed, and what is the total cost? Solve the given numerical problem and illustrate step by step calculation.