Exercises on EOQ with Volume Discount
BSNS4102, J. Wang
Name ____________________________
Ye Olde Shoe Reparie (YOSR) buys leather soles from its supplier The Leather Company
(TLC). TLC offers volume discount to YOSR as follows:
Pairs of soles in
one order
1 – 50
51 – 100
101 and up
Price / pair
$8.00
$7.60
$7.40
The cost of placing an order is $10 at YOSR. Its annual inventory holding cost per unit is
20% of the unit price. The annual demand at YOSR is about 625 pairs of soles.
Determine the most cost-effective ordering policy for the leather soles at YOSR.
Step 1. Calculate EOQ assuming the lowest possible unit holding cost.
Step 2. The EOQ amount found in Step 1falls into the volume discount range
__________________, whose unit price is ______________. Use this unit price to re-calculate
EOQ.
Step 3. Calculate the overall annual cost that includes total inventory cost and total cost of goods if
YOSR uses the order quantity Q* calculated in Step 2.
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Step 4. The discount range next to the range of the EOQ found in Step 2 is __________________ ,
whose price is ____________ per pair. Calculate the overall annual cost that includes total
inventory cost and total cost of goods if YOSR uses the smallest amount of the discount range as
the order quantity.
Step 5. Is there a discount range next to the range in Step 4?
Yes
No
If Yes, that range is __________________ , whose price is ____________ per pair.
Calculate the overall annual cost that includes total inventory cost and total cost of goods if YOSR
determines that the order quantity equals to the smallest amount of the discount range.
If No, go to Step 6.
Step 6. Pick the lowest overall annual cost from those calculated in Step 3, 4, and 5, and determine
the best order quantity that is associated with the lowest cost.
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