Question

The office manager for the Mankato Life Insurance company orders letterhead stationery from an office products firm. The companhy used 12000 boxes per year. Annual carrying cost is 30% of the price of a box of stationary, and ordering costs are $50 per order. The following discount price schedule is provided by the office company.

Order Quantity (boxes)	Price per box
1-1999	$1.50
2000-4999	1.40
5000-9999	1.10
10000 or higher	1.05

Determine the optimal quantity by showing all your work (steps).

Answer 1

EOQ = Sqroot{(2*Demand*Ordering Cost)/(Carrying Cost)}

= Sqroot{(2*12000*50)/0.3*1.05)

= 1951.8 or 1952 Approximately