Dell Inc. is purchasing silicon wafers for the production of personal computers. The Chartered semiconducting company will sell $2.70 per wafer, independently of the number of motherboard ordered; Asustek comany will sell the wafers for $2.40 each but will not consider an order for fewer than 4,000 wafers, and Acer company will sell the wafers for $2.20 each but will not accept an order for fewer than 5,000 wafers. Assume an order setup cost of $100 and a yearly requirement of 20,000 wafers. Assume a 2% monthly interest rate for holding cost calculations.
a) which source should be used and what is the size of the standing order?
b) what is the optimal value of the holding and setup costs for wafers when the optimal source is used?