Question

The bookstore at State University purchases from a vendor sweatshirts emblazoned with the school name and logo. The vendor sells the sweatshirts to the store for $36 apiece. The cost to the bookstore for placing an order is $110, and the carrying cost is 15% of the purchase price. The bookstore manager estimates that 1,340 sweatshirts will be sold during the year. The vendor has offered the bookstore the following volume discount schedule:
Discount Carrying cost
Order Size Price
1-299 0%
300-499 2%
500-799 4%
800+ 5%
The bookstore manager wants to determine the bookstore's optimal order quantity, given the foregoing quantity discount information.
1. Determine carrying cost as a percentage of purchase price information.
2. Calculate TC for each EOQ.
3. What is the bookstore's optimal order quantity?
4. With Quantity discounts carrying costs will vary with the the change in price if it computed as a percentage of purchase price.
5. Calculate EOQ for each discount price.

Answer 1

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