Economic Order Quantity (EDQ) Model

[Screwor]

Can Anyone Help With This Please?

Assume that a retailer purchases a product which costs £5.00. A supplier quotes the following discounts of the product price:

Order size	Discount
0 to 999	0%
1000 to 2499	3%
2500 and over	5%

Suppose that data and cost analysis show an annual holding cost rate of 20%, an ordering cost of £49 per order regardless to the size of orders and annual demand of 5000 products.

The 5% discount for the 2500-products minimum order quantity looks tempting. However, realising that higher order quantities result in higher inventory holding cost, the retailer has to carry out a thorough cost analysis before making a final ordering decision.

Determine the quantity of products the retailer should order each time they place and order, in such a way as to minimise the total cost incurred.

 

[stapel]

Assume that a retailer purchases a product which costs £5.00. A supplier quotes the following discounts of the product price:

Order size	Discount
0 to 999	0%
1000 to 2499	3%
2500 and over	5%

Suppose that data and cost analysis show an annual holding cost rate of 20%, an ordering cost of £49 per order regardless to the size of orders and annual demand of 5000 products.

The 5% discount for the 2500-products minimum order quantity looks tempting. However, realising that higher order quantities result in higher inventory holding cost, the retailer has to carry out a thorough cost analysis before making a final ordering decision.

Determine the quantity of products the retailer should order each time they place and order, in such a way as to minimise the total cost incurred.

What are your thoughts? What have you tried? How far have you gotten? Where are you stuck?

Please be complete. Thank you!

 

[Ishuda]

Can Anyone Help With This Please?

Assume that a retailer purchases a product which costs £5.00. A supplier quotes the following discounts of the product price:

Order size	Discount
0 to 999	0%
1000 to 2499	3%
2500 and over	5%

Suppose that data and cost analysis show an annual holding cost rate of 20%, an ordering cost of £49 per order regardless to the size of orders and annual demand of 5000 products.

The 5% discount for the 2500-products minimum order quantity looks tempting. However, realising that higher order quantities result in higher inventory holding cost, the retailer has to carry out a thorough cost analysis before making a final ordering decision.

Determine the quantity of products the retailer should order each time they place and order, in such a way as to minimise the total cost incurred.

It seems to me that the holding costs need to be better defined. For example if I ordered the 5K to start with is the holding cost 0.2 * (0.95 * 5 * 5000), i.e. 20% of the price cost without the fixed fee and if, instead, I ordered twice, would it be 0.20 * (0.95 * 5 * 2500) each time for the same total?

 

[jonah2.0]

WARNING: Beer soaked rambling/opinion/observation/reckoning ahead. Read at your own risk. Not to be taken seriously. In no event shall the wandering math knight-errant Sir jonah in his inebriated state be liable to anyone for special, collateral, incidental, or consequential damages in connection with or arising out of the use of his beer (and tequila) powered views.

Assume that a retailer purchases a product which costs £5.00. A supplier quotes the following discounts of the product price:

Order size	Discount
0 to 999	0%
1000 to 2499	3%
2500 and over	5%

Suppose that data and cost analysis show an annual holding cost rate of 20%, an ordering cost of £49 per order regardless to the size of orders and annual demand of 5000 products.

The 5% discount for the 2500-products minimum order quantity looks tempting. However, realising that higher order quantities result in higher inventory holding cost, the retailer has to carry out a thorough cost analysis before making a final ordering decision.

Determine the quantity of products the retailer should order each time they place and order, in such a way as to minimise the total cost incurred.

I love you Pilgrim Screwor!!!
I love you Dame stapel!!!
I love you Sir Ishuda!!!
I love you Sir Denis!!!
I love you all!!!
Man it still feels good to "say" that out "loud".

Quantity Discount Model situation of the EOQ.
Read about it here. Or see Wikipedia.
Thus spake Sir jonah The Plastered.

And please Dame stapel, leave my disclaimer/disclosure where it is. Forum readers, like potential investors and creditors, could after all use full disclosure from statements they're about to read before making a decision on whether to "invest" or not in our expertise. Statements that are, unlike certified financial statements courtesy of CPAs, given by some "experts" whose identity is a mere alias, who may or may not be sober or drunk. You may be doing a disservice to these lost souls if you deprive them the fact my opinions are in fact alcohol enabled.