What is the optimal order quantity-what is the annual cost

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A Bike Company has a line of specialty mountain bikes which require 5,000 handlebars annually. The handlebars can be purchased from a supplier for $30 per unit, or they can be produced internally. The internal production cost is $20 per unit, and the production rate is 20,000 units per year. The cost to set up production is $5000. It costs $25 to issue a purchase order to buy handlebars from the supplier. Inventory holding cost is 25% per year. If the Bike Company decides to produce the handlebars, what is the optimal order quantity? What is the annual cost?

Reference no: EM131481562

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