The Steady–Milver Corporation produces ball bearings. It has a family of three items, which, run consecutively, do not take much time for changeovers. The characteristics of the items are as follows:

Raw Di Material Item i ID (Units/Year) ($/Unit)

1 BB1 2,000 2.50 2 BB2 1,000 2.50 3 BB3 500 1.60 The initial setup cost for the family is $30. Management has agreed on an r value of 0.10 $/$/year. Production rates are substantially larger than the demand rates.

a. What are the preferred run quantities of the three items?

b. Raw material for product BB1 is acquired from a supplier distinct from that for the other two products. Suppose that the BB1 supplier offers an 8% discount on all units if an order of 700 or more is placed. Should Steady–Milver take the discount offer? P-96