Reference no: EM132583524
You run the inventory department at the global retailer, Dog World One of your products, a food and water bowl set, has an annual demand of 2500 units per year and they cost you $22 each. Your inventory holding charge is 25% per year and you estimate it costs about $175 to place an order. The supplier requires you to order in increments of 10 at a time.
Question a. What is your economic order quantity for this item?
Question b. Your supplier has offered you an incremental discount on their product. You will receive a 5% discount on the items ordered that are above 500 units and a 10% discount off of those items ordered that are above 750 units. So,
- If you order 400 then you pay full price for all items
- If you order 600 then you pay full price for the first 500 items, and 5% discounted price for the last 100 items
- If you order 800 then you pay full price for the first 500 items, 5% discounted price for the next 250 items, and 10% discounted price for the last 50 items.
What is your new economic order quantity for this item? Remember you have to order in increments of 10. Also compute TRC to prove your answer.
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