A company will begin stocking remote control devices. Expected monthly demand is 800 units. The controllers can be purchased from either supplier A or supplier B. Their price lists are as follows:
SUPPLIER A SUPPLIER B
Quantity Unit Price Quantity Unit Price
1-199 $14.00 1-149 $14.10
200-499 $13.80 150-349 $13.90
500+ $13.60 350+ $13.70
Ordering cost is $40 and annual holding cost is 25 percent of unit price per unit. Which supplier should be used and what order quantity is optimal if the intent is to minimize total annual costs?
However, the two suppliers now offer a marginal unit quantity discount. Supplier A sells the first 199 units at $14/unit the next 200 units at $13.80/unit, and any quantity of 500 or above at $13.60/unit. Supplier B sells the first 149 units at $14.10/unit, the next 200 units at $13.90/unit, and any quantity of 350 or above at #13.70/unit. Again, which supplier should be used and what order quantity is optimal if the intent is to minimize total annual cost?