Quantity Discounts
The Verizon store plans to order the newest iPhone from Apple. The demand for this newest iPhone is expected to be 7,225 per year. There is a $400 charge for placing an order and the store estimates an $800 cost per unit to hold it in inventory for the year.
What is the economic order quantity?
For part b) assume prices for the new iPhone are based on the quantity purchased at one time, so if less than 100 are ordered, the unit price is $1000; if 100 to 399 are ordered, the unit price is $990; and if 400 or more are ordered, the unit price is $980.
What order quantity will result in the lowest total annual cost for the Verizon store? Be sure to show your work for full credit.