Through its online accessory store, Gateway, sells its own products, as well as ones made by other companies. One of these products is the Viewsonic monitor. The annual demand for this monitor is 2,000 units. Currently, Gateway orders the Viewsonic from an OEM at the following price structure:
Regular Price 250
If order 750 units or above 248
If order 1,500 units or more 245
To carry the inventory of the Viewsonic monitors, it costs Gateway $30 for each unit in its inventory per year. The setup cost for purchasing the Viewsonic is $250 per order.
1. Based on the regular price, what is the optimal quantity Gateway should order each time?
2. Evaluate the cost to Gateway if it is more beneficial to order by the EOQ or other quantities with respect to the quantity discounts. Which of the three order quantities would result in the least expensive overall inventory cost? Show the work of your careful analysis.