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Quantity Discount Problem - Graduate Level

A company will begin stocking remote control devices. Expected monthly demand is 800 units. The controllers can be purchased from either supplier A or supplier B. Their price lists are as follows.

Supplier A
Quantity/Unit Price
1-199 / $14
200-499 / $13.80
500+ / $13.60

Supplier B
Quantity/Unit Price
1-149 / $14.10
150-349 / $13.90
350+ / $13.70

Ordering cost is $40 and annual holding cost is 25% of unit price per unit. Which supplier should be used and what order quantity is optimal if the intent is to minimize the total annual cost?

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Solution Preview

The attached file gives the Economic Order Quantity (EOQ) Calculation. The EOQ uses ordering cost which is $40, Annual Usage which is 800*12=9,600 and the carrying cost. The carrying cost ...

Solution Summary

The solution explains how to choose between two suppliers so as to minimize the total cost