4 ‘Our suppliers often offer better prices if we are willing to buy in larger quantities. This creates a pressure on us to hold higher levels of stock. Therefore, to find the best quantity to order we must compare the advantages of lower prices for purchases and fewer orders with the disadvantages of increased holding costs. This means that calculating total annual inventory-related costs should now not only include holding costs and ordering costs, but also the cost of purchased items themselves’

(Manager, Tufton Bufton Port Importers Inc.). One supplier to Tufton Bufton Port Importers Inc.

(TBPI) has introduced quantity discounts to encourage larger order quantities. The discounts are shown below:

Order quantity Price per bottle 0–100 :15.00 101–250 :13.50 251 + :11.00 TBPI estimates that its annual demand for this particular wine is 1,500 bottles, its ordering costs are :30 per order, and its annual holding costs are 20 per cent of the bottle’s price.

(a) How should TBPI go about deciding how many to order?

(b) How many should they order?