A manager has just received a revised price schedule from a supplier as shown below. What...

A manager has just received a revised price schedule from a supplier as shown below. What order quantity should the manager use in order to minimize total inventory costs? Annual demand is 1,200 units; ordering cost is $8; and holding cost is 20%.

Quantity Unit Price
1 – 39 $14

40 – 59 $13

60 – 89 $12

90 + $ 11

Solutions

Expert Solution

Quantity discounts are provided to unit cost if the particular quantity range is ordered. Reduction in unit cost reduces the holding cost. Since holding cost is inversely proportional to economic order quantity, so reduction in holding cost may increase the optimal order quantity or it may remain unchanged.

keosha answered 11 months ago

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