Lenovo needs to source hexa-core processors for the production of its laptops. The company requires these processors at a fairly steady rate of 100 per month. They have to decide among three sourcing options for these processors: supplier A, supplier B, or in-house production. Supplier A oers an all-units discount schedule for its processors: It charges $100 for each processor if the order size is less than 500, $99 for each processor if the order size is between 500 and 999, and $98 for each processor if the order size is greater than 999. The order setup cost required by this supplier is $500. Supplier B oers an incremental discount schedule for its processors: It charges $100 for each processor if the order size is less than or equal to 400, $96 for each processor purchased beyond 400 if the order size is between 401 and 800, and $92 for each processor purchased beyond 800. The order setup cost required by this supplier is $300. For the option of in-house production, it costs $750 to initiate a production run and each processor costs the company $100 to manufacture. The company has the capacity to produce 250 processors per month. The inventory holding costs are based on a 20 percent annual interest rate.

(d) (15 points) Calculate the optimal total annual cost for each option. Which option should the company choose?