Example 11-7

All Unit Discount (Example 11-7) This worksheet calculates the total cost (column F)
for different values of order quantity (column A).
Fixed cost per order, S = $ 100.00 per order The direct solution to the problem is
Monthly demand = 10,000 bottles on worksheet Example 11-7 check
Holding percentage, h = 20%
To study the impact of a lower fixed cost, change
the entry in Cell C3 to 4 and identify the lowest cost
order quantity.
Price per
Min Quantity bottle
q0 0 $ 3.00 C0
q1 5,000 $ 2.96 C1
q2 10,000 $ 2.92 C2

Initial Order Quantity = 1,000

Increment in Order Quantity = 250

Order Average Annual Annual Annual Total

Quantity Unit Cost Holding Cost Order Cost Material Cost Annual Cost
1,000 $ 3.00 $ 300 $ 12,000 $ 360,000 $ 372,300
1,250 $ 3.00 $ 375 $ 9,600 $ 360,000 $ 369,975
1,500 $ 3.00 $ 450 $ 8,000 $ 360,000 $ 368,450
1,750 $ 3.00 $ 525 $ 6,857 $ 360,000 $ 367,382
2,000 $ 3.00 $ 600 $ 6,000 $ 360,000 $ 366,600
2,250 $ 3.00 $ 675 $ 5,333 $ 360,000 $ 366,008
2,500 $ 3.00 $ 750 $ 4,800 $ 360,000 $ 365,550
2,750 $ 3.00 $ 825 $ 4,364 $ 360,000 $ 365,189
3,000 $ 3.00 $ 900 $ 4,000 $ 360,000 $ 364,900
3,250 $ 3.00 $ 975 $ 3,692 $ 360,000 $ 364,667
3,500 $ 3.00 $ 1,050 $ 3,429 $ 360,000 $ 364,479
3,750 $ 3.00 $ 1,125 $ 3,200 $ 360,000 $ 364,325
4,000 $ 3.00 $ 1,200 $ 3,000 $ 360,000 $ 364,200
4,250 $ 3.00 $ 1,275 $ 2,824 $ 360,000 $ 364,099
4,500 $ 3.00 $ 1,350 $ 2,667 $ 360,000 $ 364,017
4,750 $ 3.00 $ 1,425 $ 2,526 $ 360,000 $ 363,951
5,000 $ 2.96 $ 1,480 $ 2,400 $ 355,200 $ 359,080
5,250 $ 2.96 $ 1,554 $ 2,286 $ 355,200 $ 359,040
5,500 $ 2.96 $ 1,628 $ 2,182 $ 355,200 $ 359,010
5,750 $ 2.96 $ 1,702 $ 2,087 $ 355,200 $ 358,989
6,000 $ 2.96 $ 1,776 $ 2,000 $ 355,200 $ 358,976
6,250 $ 2.96 $ 1,850 $ 1,920 $ 355,200 $ 358,970
6,500 $ 2.96 $ 1,924 $ 1,846 $ 355,200 $ 358,970
6,750 $ 2.96 $ 1,998 $ 1,778 $ 355,200 $ 358,976
 Example 11-7

7,000 $ 2.96 $ 2,072 $ 1,714 $ 355,200 $ 358,986

7,250 $ 2.96 $ 2,146 $ 1,655 $ 355,200 $ 359,001
7,500 $ 2.96 $ 2,220 $ 1,600 $ 355,200 $ 359,020
7,750 $ 2.96 $ 2,294 $ 1,548 $ 355,200 $ 359,042
 Example 11-7 chart

Total annual cost versus order size

$368,000

$366,000

$364,000
Annual Cost

$362,000

$360,000

$358,000

$356,000

$354,000

$352,000

$350,000

$348,000
2,000 4,000 6,000 8,000 10,000 12,000 14,000
Order Size
 Example 11-7 check

All Unit Discount (Example 11-7) To see the impact of lower fixed cost S, change
Cell C3 to 4, and evaluate the order quantity
Fixed cost per order = $ 100.00 per order with the minimum total cost.
Monthly demand = 10,000 bottles
Holding percentage = 0.2

Pricing:
Min Qty Price per sq. ft.
q0 0 $ 3.00 C0
q1 5,000 $ 2.96 C1
q2 10,000 $ 2.92 C2

Range Q Price paid per Total Cost

i (Eqn 11.10) Adjust to q unit (Eqn 11.11)
0 6,325 5,000 2.96 $ 359,080
1 6,367 6,367 2.96 $ 358,969
2 6,411 10,000 2.92 $ 354,520

Without Quantity Discount

Price per sq ft Q Total Cost
$ 3.00 6,325 $ 361,916
 Example 11-7 check

wer fixed cost S, change

te the order quantity
l cost.
 Example
Marginal Unit Quantity Discount (Example 11-8
11-8)

Fixed cost per order = $ 100 per order

Monthly demand = 10,000 bottles This worksheet calculates the total cost (column F)
for different values of order quantity (column A).
Holding percentage = 20%
The direct solution to the problem is
on worksheet Example 11-8 check
Pricing: Quantity Price per sq. ft.
q0 <5,000 $ 3.00 C0 To study the impact of a lower fixed cost, change
q1 the entry in Cell C3 to 4 and identify the lowest cost
5,000-10,000 $ 2.96 C1 order quantity.
q2 >10,000 $ 2.92 C2

Initial Order Quantity = 4,000

Increment in Order Quantity = 250

Order Average Annual Annual Annual Total

Quantity Unit Cost Holding Cost Order Cost Material Cost Annual Cost
4000 $ 3.000 $ 1,200 $ 3,000 $ 360,000 $ 364,200.000
4250 $ 3.000 $ 1,275 $ 2,824 $ 360,000 $ 364,098.529
4500 $ 3.000 $ 1,350 $ 2,667 $ 360,000 $ 364,016.667
4750 $ 3.000 $ 1,425 $ 2,526 $ 360,000 $ 363,951.316
5000 $ 3.000 $ 1,500 $ 2,400 $ 360,000 $ 363,900.000
5250 $ 2.998 $ 1,574 $ 2,286 $ 359,771 $ 363,631.143
5500 $ 2.996 $ 1,648 $ 2,182 $ 359,564 $ 363,393.455
5750 $ 2.995 $ 1,722 $ 2,087 $ 359,374 $ 363,182.870
6000 $ 2.993 $ 1,796 $ 2,000 $ 359,200 $ 362,996.000
6250 $ 2.992 $ 1,870 $ 1,920 $ 359,040 $ 362,830.0000
6500 $ 2.991 $ 1,944 $ 1,846 $ 358,892 $ 362,682.4615
6750 $ 2.990 $ 2,018 $ 1,778 $ 358,756 $ 362,551.3333
7000 $ 2.989 $ 2,092 $ 1,714 $ 358,629 $ 362,434.86
7250 $ 2.988 $ 2,166 $ 1,655 $ 358,510 $ 362,331.52
7500 $ 2.987 $ 2,240 $ 1,600 $ 358,400 $ 362,240.00
7750 $ 2.986 $ 2,314 $ 1,548 $ 358,297 $ 362,159.16
8000 $ 2.985 $ 2,388 $ 1,500 $ 358,200 $ 362,088.00
8250 $ 2.984 $ 2,462 $ 1,455 $ 358,109 $ 362,025.64
8500 $ 2.984 $ 2,536 $ 1,412 $ 358,024 $ 361,971.29
8750 $ 2.983 $ 2,610 $ 1,371 $ 357,943 $ 361,924.29
9000 $ 2.982 $ 2,684 $ 1,333 $ 357,867 $ 361,884.00
9250 $ 2.982 $ 2,758 $ 1,297 $ 357,795 $ 361,849.89
9500 $ 2.981 $ 2,832 $ 1,263 $ 357,726 $ 361,821.47
9750 $ 2.981 $ 2,906 $ 1,231 $ 357,662 $ 361,798.31
10000 $ 2.980 $ 2,980 $ 1,200 $ 357,600 $ 361,780.00
10250 $ 2.979 $ 3,053 $ 1,171 $ 357,424 $ 361,648.12
10500 $ 2.977 $ 3,126 $ 1,143 $ 357,257 $ 361,526.00
10750 $ 2.976 $ 3,199 $ 1,116 $ 357,098 $ 361,412.95
11000 $ 2.975 $ 3,272 $ 1,091 $ 356,945 $ 361,308.36
11250 $ 2.973 $ 3,345 $ 1,067 $ 356,800 $ 361,211.67
11500 $ 2.972 $ 3,418 $ Example
1,043 $11-8 356,661 $ 361,122.35
11750 $ 2.971 $ 3,491 $ 1,021 $ 356,528 $ 361,039.94
 Total Cost With Varying Order Size

$365,000.000

$364,000.000
Annual Cost

$363,000.000

$362,000.000

$361,000.000

$360,000.000

$359,000.000

$358,000.000
00 50 00 50 00 50 00 50 00 50 00 50 00 50 00 50 00 50 00 50 00
40 47 55 62 70 77 85 92 10
0
10
7
11
5
12
2
13
0
13
7
14
5
15
2
16
0
16
7
17
5
18
2
19
0

Order Size ('000)

 Example 11-8 check

Marginal Unit Quantity Discount (Example 11-8)

Fixed cost per order, S = $ 100.00 per order To see the impact of lower fixed cost S, change
Cell C3 to 4, and evaluate the order quantity
Monthly demand = 10,000 bottles
with the minimum total cost.
Holding percentage, h = 20
Pricing:
Min Qty Price per sq. ft.
q0 0 $ 3.00 C0
q1 5,000 $ 2.96 C1
q2 10,000 $ 2.92 C2

V Total Cost
Range (Eqn 11.12) Q (Eqn 11.13) Adjust to Q (Eqn 11.14)
0 0 6,325 5,000 $ 363,900
1 15,000 11,028 10,000 $ 361,780
2 29,800 16,961 16,961 $ 360,365

Without Quantity Discount

Price per sq ft Q Total Cost
$ 3.00 6,325 $ 363,795
 Example 11-8 check

fixed cost S, change

e order quantity
t.