Suppose that you are the manager of a production department that uses 1600 boxes of specific parts per year. The supplier quotes you a price of $8.50 per box for an order size of 499 boxes or less, a price of $8.00 per box for orders of 500 to 1499 boxes, and a price of $7.50 per box for an order of 1,500 or more boxes. You assign a holding cost of 25 percent of the price to this inventory. What order quantity would you use if the objective is to minimize total annual costs of holding, purchasing, and ordering? Assume ordering cost is $200/order.
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