Question

The annual demand for an item of good is 2 000 units. The item cost $105 per unit and the holding cost per annum is 15% of unit cost. It cost $30 each time an order is placed. The supplier offers a discount of 4% for orders of 130 units or more and 5% discount for orders of 200 units or more. Calculate: The pre-discounted EOQ

Answer 1

The pre-discounted EOQ for the given annual demand of 2,000 units, a unit cost of $105, holding cost at 15% of unit cost, and an ordering cost of $30, is approximately 87 units.

Step-by-step explanation:

The student is asking to calculate the Economic Order Quantity (EOQ) before discounts are applied. To calculate the pre-discounted EOQ for the annual demand of 2,000 units, with a unit cost of $105, a holding cost of 15% of the unit cost, and an ordering cost of $30 per order, we use the EOQ formula:

EOQ = √((2 * Annual Demand * Order Cost) / Holding Cost)

First, we calculate the holding cost per unit: 15% of $105, which is $15.75. We then plug the values into the EOQ formula:

EOQ = √((2 * 2000 * 30) / 15.75) = √(120000 / 15.75) = √7632.91139 ≈ 87.37

The pre-discounted EOQ is approximately 87 units. Note that this does not take into account the potential savings from supplier discounts for larger order quantities.