Quantity discount
A quantity discount reduces unit purchase price when a specified order quantity or volume condition is met. For inventory decisions, compare total relevant annual costs, including purchases, ordering and holding, at feasible order quantities and discount thresholds. Lower unit price may be outweighed by higher inventory carrying cost. If holding cost is a percentage of price, recalculate it for each price band and distinguish all-units discounts from incremental bands.
Worked example
Buying 10,000 units annually at $5 costs $50,000 before ordering/holding. A 2% all-units discount saves $1,000 purchase cost, but an extra $1,300 carrying cost would make that option worse overall.
Common mistake
Do not accept a discount solely because the invoice price falls, or use an EOQ outside the quantity band for which its price is valid.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | MA | Direct | September 2026–June 2027 |
| FIA | FMA | Direct | September 2026–June 2027 |