The annual demand, ordering cost, and the annual inventory carrying cost rate for a certain item are , and I = 30% of item price. Price is established by the following quantity discount schedule
What should the order quantity be in order to minimize the total annual cost?
Quantity 1 to 49 50 to 249 250 and up
Price $5.00 per unit $4.50 per unit $4.10 per unit
STEP 1: EOQ at $4.10 = 139.69 → infeasible
EOQ at $4.50 = 133.33 → feasible
So the possible best answers are 133 and 250
STEP 2: TC for 133 units = $2,880.00
TC for 250 units = $2,661.75
Therefore, order 250 units paying $4.10 per unit. Holding costs are much larger than ordering costs, but this is offset by the unit price reduction.
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