Source:

EX13.13

Hodges, Spring 2001

A mail-order house uses 18,000 boxes per year. Carrying costs are 20 cents per box
per year and ordering costs are $32. The following price schedule applies.
Number of Boxes
1,000 to 1,999
2,000 to 4,999
5,000 to 9,999
10,000 or more

Price
$1.25
$1.20
$1.18
$1.15

D=
Co=
Cc=

18000
32
0.2

EOQ=
cc cost

2400
240

order cost
Answer the following questions using 2 decimal places of accuracy.

What is the optimal order quantity without any discount?

What is the total cost, including purchase price, for the EOQ number above?

What is the total cost, including purchase price, for 1,000 boxes?

2,000 boxes?

5,000 boxes?

10,000 boxes?

What is the recommended order quantity?

240

price and quanity

$21,600.00

Total cost

$22,080.00

Annual
Annual Ordering Cost = (D / Q)*Co
uD
D = Annual Demand
uQ
Q = Quantity Ordered per Request
uCo
Co = Ordering (set-up) Cost
uP
P = Purchase Price per unit
Annual
Annual Carrying (Holding) Cost = (Q / 2)*Cc
uCc
Cc = Carrying cost per unit per year (in $)
uTC
TCPD=
= (D
(D // Q
)*Co++(Q
(Qopt
/ 2)*Cc + PD
Total
Total Costs
Q)*Co
/ 2)*Cc
opt
Q
Qopt = 2D(Co)
Cc