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Lott Manufacturing: Quantity Discounts

Lott Manufacturing Inc. has been ordering parts for its production process in lots of 10,000 units. Each order costs the firm $50 to place, and holding costs per unit average $3. Lott uses 200,000 units every 250 days.

Lott Manufacturing was recently approached by its supplier with a new quantity discount program. The supplier offered the following quantity discounts.

Quantity Cost per unit
0-1,999 $5.00
2,000-3,999 4.99
4,000-5,999 4.98
6,000-7,999 4.97
8,000-9,999 4.96
10,000+ 4.95

What order quantity is optimal for Lott to place considering the quantity discounts?

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The discount is irrelevant in the computation of the economic order ...

Solution Summary

The solution examines Lott Manufacturing quantity discounts.