Problem: Lott Manufacturing Inc. has been ordering parts for its production process in lots of 10,000 units. Each order costs the firm $50 to place, and holding costs per unit average $3. Lott uses 200,000 units every 250 days.
Lott Manufacturing was recently approached by its supplier with a new quantity discount program. The supplier offered the following quantity discounts.
Quantity Cost per unit
0-1,999 $5.00
2,000-3,999 4.99
4,000-5,999 4.98
6,000-7,999 4.97
8,000-9,999 4.96
10,000+ 4.95
What order quantity is optimal for Lott to place considering the quantity discounts?