Share
Explore BrainMass

# EOQ and finanical effecs where disounts offer on bulk buying

Drake Electronics manufactures a number of electronic devices. The company got its start during World War II by manufacturing radio communications equipment for the military. However, today one of their major products is a liquid crystal display (LCD). Their LCDs are used in a variety of applications, including cockpit displays. One of the components of the LCD is the cover glass where the image is displayed. Drake has been ordering the glass covers from Kyocera. Drake needs approximately 12,000 DR 304 Glass Covers annually for one of its products. Each DR 304 Glass Cover costs \$10.00. The cost of ordering is estimated at \$200.00 per order. The annual carrying cost rate is 25%. The number of operating days is 250 or 50 weeks. Currently they order 480 covers every two weeks. Another vendor, Easton, has offered to give Drake a quantity discount as follows:

Quantity Price
0-499 \$10.00
500 â?" 2499 \$9.50
2500 â?" 4999 \$9.00
5000 plus \$8.50

a. If Drake continues to purchase the DR 304 Glass Cover from Kyocera, determine the EOQ and the total cost of purchasing the item using the EOQ.

b. Compare the total cost in part â??aâ? above to the total cost that Drake is incurring currently. If Drake continues to purchase the DR 304 from Kyocera, should Drake make a change in its order policy? Explain your answer.

c. Find the EOQs and determine the total cost for each price level (i.e., complete the table below) for DR 304 if Drake were to purchase the glass cover from Easton.

Category
Price
EOQ
Q*
AHC
AOC
Cost
Total Cost

d. How many DR 304 glass covers should Drake order each time it places an order [based on the information in the table]? Explain why you chose that quantity.

e. How many times will Drake place an order each year [based on your answer to d]?

f. How many days between placing orders [based on your answer to d]?

#### Solution Summary

-EOQ at current level and its costs
-EOQ at varying level of discounts
-Evaluation and decision on the alternatives

\$2.19