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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. 1 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. 2