quantity discount - Quantity Discounts Quantity discounts...

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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
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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
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Annual demand ( D ) = 936 units Ordering cost ( S ) = $45 Holding cost ( H ) = 25% of unit price
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