A local accounting firm in Smalltown orders boxes of floppy disks (10 disks to a box)

from a store in Megalopolis. The per-box price charged by the store depends on the number of boxes purchased (see Table 2). The accounting firm uses 10,000 disks per year. The cost of placing an order is assumed to be $100. The only holding cost is the opportunity cost of capital, which is assumed to be 20% per year. For this example, b1 = 100, b2 =

300, p1= $50.00, p2 = $49.00, and p3 = $48.50.

The example is continued later in this section.

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TABLE 2 Purchase Costs for Disks No. of Boxes Price per Ordered (q) 0 q < 100 $50.00 100 q < 300 $49.00 q 300 $48.50