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    Quantity Discount Problem - Graduate Level

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    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