Question

Apply the EOQ model to the following quantity discount situation in which D = 450 units per year, C_o = $42, and the annual holding cost rate is 20%.

Discount Category	Order Size	Discount (%)	Unit Cost
1	0 to 99	0	$12.00
2	100 or more	3	$11.64

What order quantity do you recommend? If required, round your answer to the nearest whole number.

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Answer 1

Answer:

Given Data

From given data,

D = 450 units per year,

Co = $42, and

The annual holding cost rate = H = 20%

Discount Category	Order Size	Discount(%)	Unit Cost
1	0 to 99	0	$12.00
2	100 or more	3	$11.64

The annual holding cost rate H = 20%

   = 20/100 * 12

   =2.4

   = 20/100 * 11.64 = 2.328

Formula for EOQ

EOQ =

At order size 0 to 99

This is not feasible as it is not in quantity range ' 0-99 ' units.

At order size 100 or more

This is feasible as it is not in quantity range ' 100 or more ' units.

So, the optional order quantity is 127.429 that is near whole number is 127 units.

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