Suppose that you are the manager of a production department that uses 400 boxes of bolts per year. The supplier quotes you a price of Rs.850 per box for an order size of 199 boxes or less, a price ofRs.800 per box for orders of200 to 999 boxes, and a price ofRs.750 per box for an order of 1,000 or more boxes. You assign a holding cost of 25 % of the price to this inventory. Ordering cost is Rs.8,000 per order.
a) What order quantity would use if the objective is to minimize total annual cost of holding, purchasing and ordering.
b) What is the reorder level if the company maintain a safety stock of one month demand? Assume that supply lead time is two weeks.
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