Question

Consider the all-units quantity discount schedule below. The annual demand is 90,000 units, setup cost is $1000 per order, and annual holding cost is 30% of the unit cost. What is the optimal order quantity? Quantity Ordered Price Per Unit 1−499 $300 500−999 $280 1000−1499 $250 1500 and over $210 a. 1549 b. 1000 c. 1690 d. 1500 e. 1414

Answer 1

Answer:

Using the lowest price of $210 offered by the supplier                                                                              

Annual demand (D) = 90,000 units

Set-up cost per order (S) = $1,000

Holding cost per item per annum =  30% x $210 = $63

EOQ = √2DS

                H

EOQ = √2 x 90,000 x $1,000

                   63

EOQ = 1,690 units

The correct answer is C

Explanation:

In this case, there is need to calculate the EOQ using the least price offered by the supplier. The least price gives the minimum total cost. EOQ is calculated as: 2 multiplied by annual demand and set-up cost divided by holding cost. The EOQ of 1,690 units gives the least total cost and thus recommended.