The annual demand for an item is 10,000 units. The cost to process an order is $75 and the annual inventory holding cost is 20% of item cost. What is the optimal order quantity, given the following price breaks for purchasing the item? What price should the firm pay per unit? What is the total annual cost at the optimal behavior?
Quantity Price
1 – 9 $2.95 per unit
10 – 999 $2.50 per unit
1,000 – 4,999 $2.30 per unit
5,000 or more $1.85 per unit