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Optimal Operating Doctrine

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The bozo manufacturing co. uses a gauge and has an annual usage rate of 100,000 units/year. The unit has an ordering cost of $50 and an annual unit carrying charge of 20% of the unit price. For lot sizes of fewer than 5,000, the unit price is $.50; for 5,000 to 10,000 the unit price is $.45, and for over 10,000 units $.40 per unit. Determine the optimal operating doctrine.

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Provided are details on calculating Optimal Operating Doctrine given the annual usage rate, ordering cost, and annual unit carrying charge.

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