In: Statistics and Probability
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.
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.