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Reorder Point - Reorder Point Safety Stock Reorder Point w...

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Reorder Point 1 Safety Stock protects the firm from running out of inventory if sales are not stable or the production or delivery times are uncertain or Reorder Point w/ Safety Stock and Delivery Time
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Incorporating Quantity Discounts 2 Now we will weave in quantity discounts. It must be determined if the discount for volume orders offsets the TC = Order Cost + Holding Cost + Item Cost TC = [ F х ( T/Q ) ] + [ H х ( Q /2) ] + (C’ х T) New T = Total inventory units demanded Q = Order quantity F = Fixed Order Cost per order
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Incorporating Quantity Discounts 3 Before, there was no discount offered, and the EOQ was 4,000 at $0.50/unit; with the discount, it is now 5,000. Period Inventory Requirement 500000 Ordering Costs $20.00 Per Order Holding Costs $1.25 Per Ton 0 - 999 $0.50 500 $270,313 $20,000 $313 $250,000 1,000 - 2,999 units $0.48 1000 $250,625 $10,000 $625 $240,000 3,000 - 4,999 units $0.45 1500 $247,604 $6,667 $938 $240,000 5,000+ units $0.40 2000 $246,250 $5,000 $1,250 $240,000 2500 $245,563 $4,000 $1,563 $240,000 3000 $230,208 $3,333 $1,875 $225,000 3500 $230,045 $2,857 $2,188 $225,000 4000 $230,000 $2,500 $2,500 $225,000 4500 $230,035 $2,222 $2,813 $225,000 5000 $205,125 $2,000 $3,125 $200,000 5500 $205,256 $1,818 $3,438 $200,000 6000 $205,417 $1,667 $3,750 $200,000 Quantity ( Q ) Cost/ Unit ( C ') Quantity ( Q ) Total Costs Ordering Costs Holding Costs (based
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