Question

The Kuantan Corporation purchases a component from a supplier who offers quantity discounts to encourage larger order quantities. The supply chain manager of the company wants to determine the optimal order quantity to ensure the total annual inventory cost is minimized. The company’s annual demand forecast for the item is 4,550 units, the order cost is $25 per order, and the annual holding rate is 12 percent. The price schedule for the item is:

Order Quantity	Price per Unit ($)
1–150	4.00
151–350	3.50
351 and above	3.00

Open the spreadsheet and perform the required analysis to answer the questions below. Do not round intermediate calculations.

Open spreadsheet

Questions

1. What is the optimal order quantity that will minimize the total annual inventory cost for this component? Round your answer to two decimal places.

2. What is the minimum total annual inventory cost? Round your answer to the nearest cent.

Optimal Order Quantity with Quantity Discounts
Annual Demand Forecast		4550
Order cost per order		$25.00
Annual holding rate		12%
Order Quantity		Price per unit
1	150	$4.00
151	350	$3.50
351	1.00E+99	$3.00
			Feasible?		Formulas
EOQ at the highest price point					#N/A	#N/A
EOQ at the middle price point					#N/A	#N/A
EOQ at the lowest price point					#N/A	#N/A
TAIC					#N/A

Answer 1

1. What is the optimal order quantity that will minimize the total annual inventory cost for this component? Round your answer to two decimal places

				Feasible?
EOQ at the highest price point	688.45	No
EOQ at the middle price point	735.98	No
EOQ at the lowest price point	794.95	yes

2. What is the minimum total annual inventory cost? Round your answer to the nearest cent.

TAIC

13936.18

calculation

Formula