Determine the Optimal Number of Alarm Clocks to Order D 1,000 Units S 10 per Order.50 per Unit per Year Q* 2D* 2(1,000 hand painted gifts 10).50 40,000 200 units EOQ Example.

Cost of stockouts.

Cost of safety stock, the additional inventory that may be held to help avoid stockouts.

Irregular Supply and Demand.There are separate cost curves for the first (0 Q 999 second (1,000 Q 1,999 and third (Q 2,000) discounts.For example, H.50 per unit per year.Successfully reported this slideshow.A saving in the form of reduced ordering costs.Cost to heat the oven to the correct temperature for each additional muffin:.05.Ever heard of a baker's dozen?72 barrels4,873.0 200500,102.In quantity discount EOQ models, the unit carrying cost, H, is typically expressed as a percentage (I) of the unit purchase cost (P).Home Business Accounting Prime Cost Quantity Discount, quantity discount is a reduction in price offered by seller on orders of large quantities.Note: You may be wondering whether increasing the order size from 1000 units will result in more savings.S Q* x H 2D) H 2DS/Q* 41 Calculating the Ordering Costs (S) and Carrying Cost (H) for a Given Value of EOQ EOQ Formula:.

Basic EOQ Model, Quantity Discount, Economic Lot Size.

Try it risk-free, no obligation, cancel anytime.However, the total cost at 1,000 units (which is the minimum quantity needed to get this discount) is still less than the lowest total cost for discount.Five main uses of Inventory are as follows:.Publishing as Prentice Hall Special Inventory Models 2010 Pearson Education, Inc.D 1,000 Units Q* 200 units S 10 per Order N 5 orders per year.50 per Unit per Year T 50 days P 5 Total Annual Cost Setup Cost Holding Cost Purchase Cost TC S H (P x D) D Q* Q*.Number of orders Annual Demand/Q*. .Furthermore, the ordering cost is 49 per order, the annual demand is 5,000 race cars, and the inventory carrying charge as a percentage of cost, I, is 20,.2.Smooth-out variations in operation performances. .Since the holding cost is partially determined on the basis of purchase price, we need to re-calculate the EOQ by applying a discount.

As with previous inventory models discussed so far, the overall objective is to minimize the total cost.

Another order is placed such that when the inventory level reaches 0, the new order is received and the inventory level again jumps to Q units, represented by the vertical lines.