quantity discount

# quantity discount - Quantity Discounts Quantity discounts...

This preview shows pages 1–4. Sign up to view the full content.

Quantity Discounts Quantity discounts, which are price incentives to purchase large quantities, create pressure to maintain a large inventory. For any per-unit price level, P , the total cost is: Total annual cost = Annual holding cost + Annual ordering cost + Annual cost of materials C = ( = ( H ) + ( ) + ( S ) + ) + PD PD Q 2 D Q D = annual demand S = setup costs P = per-unit price level H = unit holding cost Q = EOQ

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Step 1 . Beginning with the lowest price, calculate the EOQ for each price level until a feasible EOQ is found. It is feasible if it lies in the range corresponding to its price. Step 2 . If the first feasible EOQ found is for the lowest price level, this quantity is the best lot size. Otherwise, calculate the total cost for the first feasible EOQ and calculate total cost for the largest price break quantity at each lower price level. The quantity with the lowest total cost is optimal. Finding Q with Quantity Discounts
Annual demand ( D ) = 936 units Ordering cost ( S ) = \$45 Holding cost ( H ) = 25% of unit price

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern