The inventory manager has typically ordered a quantity of 800 each time an order is needed for one of their popular tires to take advantage of the discount provided by the supplier and save the company money. The following discount schedule has just been received reflecting recent changes in the discount percentages. The manager still maintains that an order quantity of 800 will save the company the most money because of the quantity discount.
Order Quantity Discount Acquisition Cost
0-399 0% 79.95
400-799 5% 75.95
800+ 10% 71.95
Assume this tire is forecasted to have a constant demand of 1600 tires over the next year. They reported a total ordering cost of $45 and a total carrying cost of $15,542 for last year with a lot size of 800 and acquisition cost of $71.95. Consider their carrying cost for all items to be in the units of cost per dollar of acquisition cost per year.
Find EOQ and the total cost at EOQ.
Excel file contains calculations of Quantity Discount for Inventory and EOQ.