# Class 13 - AGENDA QUANTITY DISCOUNT MODEL REORDER POINT PROBABLISTIC DEMAND FIXED ORDER POINT SYSTEM Quantity Discount Models Reduced prices are

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AGENDA QUANTITY DISCOUNT MODEL REORDER POINT PROBABLISTIC DEMAND FIXED ORDER POINT SYSTEM

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Quantity Discount Models þ Reduced prices are often available when larger quantities are purchased þ Trade-off is between reduced product cost and increased holding cost Total cost = Setup cost + Holding cost + Product cost TC = S + H + PD D Q Q 2
Quantity Discount Models Discount Number Discount Quantity Discount (%) Discount Price (P) 1 0 to 999 no discount \$5.00 2 1,000 to 1,999 4 \$4.80 3 2,000 and over 5 \$4.75 Table 12.2 A typical quantity discount schedule

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Quantity Discount Models 1. For each discount, calculate Q* 2. If Q* for a discount doesn’t qualify, choose the smallest possible order size to get the discount 3. Compute the total cost for each Q* or adjusted value from Step 2 4. Select the Q* that gives the lowest total cost Steps in analyzing a quantity discount
Quantity Discount Models 1,000 2,000 Total cost \$ 0 Order quantity Q* for discount 2 is below the allowable range at point a and must be adjusted upward to 1,000 units at point b a b 1st price break 2nd price break Total cost curve for discount 1 Total cost curve for discount 2 Total cost curve for discount 3 Figure 12.7

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Quantity Discount Example Calculate Q* for every discount Q* = 2DS IP Q1* = = 700 cars/order 2(5,000)(49) (.2)(5.00) Q2* = = 714 cars/order 2(5,000)(49) (.2)(4.80) Q3* = = 718 cars/order 2(5,000)(49) (.2)(4.75)
Quantity Discount Example Calculate Q* for every discount Q* = 2DS IP Q1* = = 700 cars/order 2(5,000)(49) (.2)(5.00) Q2* = = 714 cars/order 2(5,000)(49) (.2)(4.80) Q3* = = 718 cars/order 2(5,000)(49) (.2)(4.75) 1,000 — adjusted 2,000 — adjusted

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Quantity Discount Example Discount Number Unit Price Order Quantity
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## This note was uploaded on 10/30/2011 for the course BUS 451 taught by Professor Bilbrey during the Spring '11 term at Anderson University SC.

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Class 13 - AGENDA QUANTITY DISCOUNT MODEL REORDER POINT PROBABLISTIC DEMAND FIXED ORDER POINT SYSTEM Quantity Discount Models Reduced prices are

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