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If the EOQ calculated falls within the discount range….what has to be done?
Please solve this question as an illustration:
A company has a demand for 45,000 components pa, which cost $4.50 each. Ordering costs amount to $100 per order. Annual cost of holding one component in inventory is $0.65.
A 0.5% discount is available on orders of at least 3,000 components and 0.75% on 6,000 components or more.Calculate the optimal order quantity.
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if discount offered, when u comapre the different options, you need to calcluate these 3 options which one is the cheapest. you need to compare total inventory cost=holding +ordering + purchase price
USING EOQ:
EOQ=3000
holing cost=?3000/2)x 0.65=975
ordering cost=100x 45000/3000=1500
purchasing cost=45000×4.50x(1-0.5%)=201487.4
total=975+1500+201487.4=203962.5if order 6000 or more
holding=6000/2 x0.65=1950
ordering=100x 45000/6000=750
purchasing=45000×4.5x(1-0.75%)=200981.25
total=1950+750+200981.25=203681order 6000 or more will be beneficial to the company
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you are welcome
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