Answer:
or ordering quantity 1-9,
EOQ = sqrt((2*annual demand*ordering cost)/holding cost per unit per year) = sqrt((2*10000*75)/(20%*2.95)) = 1594.48201
Optimal ordering quantity will not be in this range as calculated EOQ is beyond the range
For ordering quantity 10-999,
EOQ = sqrt((2*annual demand*ordering cost)/holding cost per unit per year) = sqrt((2*10000*75)/(20%*2.5)) = 1732.050808
Optimal ordering quantity will not be in this range as calculated EOQ is beyond the range
For ordering quantity 1000-4999,
EOQ = sqrt((2*annual demand*ordering cost)/holding cost per unit per year) = sqrt((2*10000*75)/(20%*2.3)) = 1805.787796
Total annual cost = ordering cost + holding cost + purchase cost = (10000/1805.787796)*75+(1805.787796/2)*(20%*2.3)+10000*2.3 = 23830.66239
For ordering quantity 5000 or more,
EOQ = sqrt((2*annual demand*ordering cost)/holding cost per unit per year) = sqrt((2*10000*75)/(20%*1.85)) = 2013.468166
EOQ is adjusted upwards to 5000 to avail the discount
Total annual cost = ordering cost + holding cost + purchase cost = (10000/5000)*75+(5000/2)*(20%*1.85)+10000*1.85 = 19575
So, optimal ordering quantity = 5000
Firm should pay $1.85 per unit
Annual cost at the optimal behavior = 19575
Explanation:
