Question: Daisey Specialties purchases a particular hardware item at the following prices:

Less than 2500 units $3.75/ unit

2500 through 4999 units $3.50/ unit

5000 through 9999 units $3.25/ unit

10,000 or more units $3.00/ unit

It costs the company $250 to process each purchase order and to receive and inspect each lot of the units shipped by the supplier. Storage costs are 30% of the unit purchase price per unit per year. The company purchases 15,000 units/year, and it uses them at nearly a constant rate during the year.

a. What's the optimum order size? Justify your answer.

b. If it takes 2 weeks from the time of ordering a unit until a lot is received from the supplier, inspected, and made available for use by the company and if the company wants a safety stock equal to 1 week of average demand, what should the reorder level be? (assume 52 weeks/ year)