Consider the case of a decision-maker
who is a buyer of 9-volt alkaline batteries. The price schedule of
one of his favorite suppliers is given as:

                       
Quantity                    
Price per Unit

                       
1 –
149                     
           
$1.99  

                       
150 –
239                   
$1.79

                       
240 –
499                   
$1.59

                       
    500
+                                  
$1.39

      The
manager purchases 600 batteries per year. It costs$16 to execute a
purchase order, and the annual carrying cost for this type of
product is at 22% of value. Use this information to answer the
following questions. You must show your work to receive credit on
the assignment.

           
a.         What would be
the cost-minimizing ordering behavior in the absence of any
discount
                       
(that is, at the unit list price of $1.99)?

     
b.   Given the discount schedule, what order quantity
should be purchased to minimize
                           
total inventory costs and best take advantage of the discount
opportunities?

     
c.   What would be the total inventory cost for this
optimal order quantity?