Question

Zeus Lighting Fast sells peripherals, such as printers and scanners, with their new desktop and laptop computers. Their supplier for printers charges $50 per order, and holding cost is $200 per unit. They sell 50 printers per month. The manufacturer has offered the following price schedule:

Order Quantity	Price Per Unit
< 12	$520
12 to 64	$510
65 to 128	$495
>128	$485

a) What order quantity minimizes total annual inventory cost?

Note: You must show all steps to receive credit

b) The supplier has offered to be a drop shipper, i.e., they will ship directly to the customer. In exchange, they will increase the unit price to $520 per computer, but not charge the ordering costs and all inventory will be held at the supplier. From a purely financial standpoint, should Zeus take them up on the offer?

Answer 1

Answer(a) : 65 units of order quantity minimizes total annual inventory cost.

Answer(b) : In this situation, Zeus should not take up the order.

Solutions & Explanation :-

Inventory Cost is the sum of (i)- total setup or ordering cost and (ii)- total holding or carrying cost and (iii)-total purchase cost.