Westside Inc. plans to supply its product-A from an Asian supplier to reduce high labour costs. The cost is currently $70 per kilogram to produce whereas with the planned offshoring option the cost will be cut down to $50 per kilogram to produce. Holding costs are based on a 10% annual interest rate (i.e., 10% of the production cost is the yearly holding cost for one kilogram of product A). The demand is deterministic and 3000 kilograms per month. Assume that the setup cost is $500 per order locally. The setup cost abroad depends on the means of the transportation so it depends on the order size. The cost is $800 for order levels below 3000 and $900 for every order over 3000 because they need to use a larger ship for the orders over 3000. Assume that local production has lead time of 2 weeks and offshoring has a lead time of 6 weeks. What should be the order size for Westside when producing locally and when offshoring?

Find the total cost of production, holding, and setup for each option. In terms of the total cost of production which option, producing locally or offshoring, do you recommend?