Question

In: Statistics and Probability

Apply the EOQ model to the following quantity discount situation in which D = 450 units...

Apply the EOQ model to the following quantity discount situation in which D = 450 units per year, Co = $42, and the annual holding cost rate is 20%.

Discount
Category
Order Size		 Discount
(%)
Unit Cost
1   0 to 99 0 $12.00  
2   100 or more 3 $11.64  

What order quantity do you recommend? If required, round your answer to the nearest whole number.

Solutions

Expert Solution

SOLUTION:

From given data,

D = 450 units per year,

Co = $42, and

The annual holding cost rate = H = 20%

The annual holding cost rate = H = 20%

20/100 * 12 =2.4

20/100 * 11.64 =2.328

Formula for

=

At order size 0 to 99

=

= 125.499 units

This is not feasible as it is not in quantity range ' 0-99 ' units.

At order size 100 or more

=

= 127.4249 units

This is feasible as it is not in quantity range ' 100 or more ' units.

So, the optional order quantity is 127.429 that is near whole number is 127 units.

orchestra answered 3 years ago
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