SMI will need to purchase 30,000 sheets of this product on an annual basis. The steel producer has a minimum order quantity of 1,000 sheets and offers a sliding price scale based on the quantity in each order, as follows.
Order Quantity Unit Price
1000-1999 $5
2000-2999 $4
3000 + $3
The purchasing department estimates that it costs $250 to process each order, and SMI has an inventory carrying cost equal to 20 percent of the value of inventory.
Based on this information, use the price-break model to determine an optimal order quantity.
a. 5000
b. 2000
c. 3000
d. 4000
e. 1000
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