Widget corp. supplies widget kits retailers. Faces decision regarding purchase of kits from the manufacturer.
monthly demand = 3600 units
ordering costs = $25
holding cost per unit per month = $0.45
purchase price per unit = $0.85 per unit
discount price = $0.82 per unit
quantity needed to qualify for discount = 6000 units
Should discount be taken.
EOQ = SQRT (2 X Demand x Ordering Cost / Holding Cost)
= SQRT ( 2 X 3600 x 25 / .45) = 633 units
Total Holding Cost = Q/2 holding cost = 633/2 x 0.45 = ...