Model: EOQ and quantity discounts
JP Ltd manufacturers of a special product, follows the policy of EOQ for one of its components. The component’s details are as follows:
|
Purchase price per component |
200 |
|
Cost of an order |
100 |
|
Annual cost of carrying unit in inventory |
10% of purchase price |
|
Total cost of inventory and ordering per annum |
4,000 |
The company has been offered a discount of 2% on the price of the component provided the lot size is 2,000 components at a time.
- Compute the EOQ
- Advise whether the quantity discount offer can be accepted [Assume that the inventory carrying cost does not vary according to discount policy.]
- Would your advice differ if the company is offered 5% discount on a single order?