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

Question

Vance Watts

Business

28 January, 20:16

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

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Answers (1)

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Amaya Middleton · Answer 1

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.