Question:

A large producer purchases a special kind of oil, used in one of its products from

suppliers. It uses this oil at a fairly steady rate of $40$ pounds per month, and the

company uses a $0\mathrm{.}28$ percent annual interest rate to compute holding costs. The oil

can be purchased from two suppliers, A and B$.$ Company A offers the following all$-$

units discount schedule:

On the other hand, B offers the following incremental discount schedule: $$3\mathrm{.}1$ per

pound for all orders less than or equal to $700$ pounds, and $$2\mathrm{.}5$ per pound for all

incremental amounts over $700$ pounds. Assume that the cost of order processing for

each case is $$150.$ Which supplier should be used and what should be the

replenishment order size?