Question

A quantity discount of 10% in existing unit price is offered, provided order and supply quantity is at least 500 units.

The following information is given:

Annual demand - 1000 numbers

Procurement cost per order - Rs 100

Inventory carrying cost per annum- 22% of the acquisition cost

Existing unit price ( acquisition cost ) Rs 10

What will be the annual saving ( if any) if discount is availed of, instead of ordering out as per EOQ based on the information above?

Answer #1

D = annual demand = 1000 units

C = cost per unit (w/o discount) = Rs. 10

S = ordering cost = Rs. 100

H = 22% x 10 = Rs. 2.2

**EOQ = Q* = (2.D.S / H) ^{1/2}** =
SQRT(2*1000*100/2.2) = 302 units.

We will check the total relevant cost (=total ordering + carrying + procurement cost) at Q=302 and Q=500.

Q | C | H=0.22C | Carrying Cost =Q.H / 2 |
Ordering Cost =(D/Q) x S |
Purchase cost =D x C |
Total relevant cost |

302 | 10 | 2.2 | 332.2 | 331.1 | 10000 | 10663.3 |

500 | 9 | 1.98 | 495 | 200.0 | 9000 | 9695.0 (min) |

The total saving by availing the discount = 10663.3 - 9695 =
**Rs. 968.3 per annum**

URGENT
Ltd uses the Economic Order Quantity Model to determine order
quantities. The following information is given for the next
year:
Order
costs
20 per order
Delivery
costs
5 per order
Holding
costs
10% of purchase price per annum
Annual
demand
27,000 units
Purchase
price
40 per unit
No safety stocks are
held.
a. What is the EOQ?
b. What are the total annual costs of stock if the company uses
EOQ...

(URGENT ) PoMA Ltd uses the Economic Order Quantity Model to
determine order quantities. The following information is given for
the next
year:
Order
costs
20 per order
Delivery
costs
5 per order
Holding
costs
10% of purchase price per annum
Annual
demand
18,000 units
Purchase
price
40 per unit
No safety stocks are
held.
a. What is the EOQ?
b. What are the total annual costs of stock if the company...

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Problem 10-21 (Algorithmic)
Apply the EOQ model to the following quantity discount situation
in which D = 450 units per year, Co =
$42, and the annual holding cost rate is 30%.
Discount
Category
Order Size
Discount
(%)
Unit Cost
1
0 to 99
0
$11.00
2
100 or more
2
$10.78
What order quantity do you recommend? If required, round your
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URGENT
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[2 Marks]
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