Question

A distribution center for a sporting goods retailer places orders with manufacturers for a variety of items. Among these is a standard skateboard, targeted to first-time skate boarders. The regular price is $20.00, however, the manufacturer of this skateboard offers quantity discounts per the following discount schedule:

Option Plan	Quantity	Discount
A	1 - 999	0%
B	1,000 - 2,499	0.50%
C	2,500+	1.75%

The retailer pays $75 each time it places an order with the manufacturer. Holding costs are negligible (none) but they do earn 10% annual interest on all cash balances (meaning there will be an financial opportunity cost when they put cash into inventory). Annual demand is expected to be 2,400 units.

Based on this information, which quantity discount plan should they select? (In the answer field below, write the number that corresponds to your answer. Do not put a period after the number.)

Option Plan A

Option Plan B

Option Plan C

For this selected option, what will be the adjusted order quantity? (Display your answer to the nearest whole number.)

What will be the annual holding cost for this option? (Display your answer to the nearest whole number.)

What will be the total annual inventory cost for this option? (Display your answer to the nearest whole number.)

Answer 1

Similarly with the discount of 0.50% (price will be 19.9) and
1.75% (price will be 19.65), the EOQ will be 425 and 429.
Since the optimal order quantity falls between 0 - 999, hence
the Option Plan A is more suitable.

Following is the calculation of holding cost and total
inventory cost.

The holding cost is $424.26 and the total annual inventory

cost is $48,849