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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?

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