Posted: July 13th, 2015

Find the optimal order quantity of flour for Seward.

Seward Company buys 35,000 lb of flour annually. The cost of placing an order is estimated to be $35, and its cost of capital is 12%. The storage and handling costs are estimated to be 2 cents per lb annually, at the average inventory level. The price of flour is as follows: up to a 1000 lbs at 12¢ per lb, 1,000 to 4999 lbs at 11¢ per lb, and 5,000 lbs and over at 10¢ per lb. Find the optimal order quantity of flour for Seward.