A jewellery manufacturer buys semi-precious stones to make bracelets and rings. The supplier has quoted a price of $8 per stone for order quantities of 600 stones or more, $9 per stone for orders of 400 to 599 stones, and $10 per stone for smaller order quantities. The jewellery manufacturer operates 200 days per year. Usage rate is 25 stones per day, and ordering cost is $48 per order.
a. If annual holding cost is 30 percent of unit cost, what is the optimal order quantity'?
b. If lead time is six workdays, at what inventory level should the company reorder?