Question

Consider the all-units quantity discount schedule below.

Price Bracket	Quantity Ordered	Price Per Unit	EOQ at that Price
1	1-1999	$100	3,454
2	2000-3999	$90	3,647
3	4000-5999	$80	3,860
4	6000-7999	$70	4,067
5	8000+	$60	4,510

If you want to take advantage of the price discount in Price Bracket 2, given the required order quantity and calculated EOQ at that price, what is the Total Annual Cost (holding, setup, and purchasing) following the optimal order quantity in that price bracket? Assume an annual demand of 15,500, setup cost of 125, and holding cost of 20% per year, and round your answer to the nearest dollar. Note, you don't need to calculate the EOQ, use the ones provided for you in the table above.

Answer 1

Answer:

All-units quantity discount schedule is shown below:

Price Bracket	Quantity Ordered	Price Per Unit	EOQ at that Price
1	1-1999	$100	3,454
2	2000-3999	$90	3,647
3	4000-5999	$80	3,860
4	6000-7999	$70	4,067
5	8000+	$60	4,510

Information given is as under:
P = Price per unit	90	$
A = Annual Demand	15500	unit per year
O = Setup cost	125	$ per order
C = Holding cost = P*20% =	18	$ per unit per year
Economic Order Quantity (EOQ) =	3647.00	units
N = Number of orders = Order cycles per year = A / EOQ =	4.25	orders
Annual Holding cost = (EOQ/2)*C =	32823.00	$
Annual Setup cost = N*O =	531.26	$
Purchasing Cost = A*P =	1395000.00	$
Total Annual Cost = Annual Holding cost + Annual Setup Cost + Purchasing Cost=	1428354.26	$