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The case of variable quantity discounts
In practice, suppliers may offer different discounts for different quantities purchased. For illustration: Segment Quantity Purchased Unit Price 1 0 — 500 Shs 100 2 501 — 1,000 Shs 90 3 1001 — 1,500 Shs 80 4 over — 1,500 Shs 70
The best approach to the solution in this case is to apply the price-breaks theorem. This works as shown below:
(1) For each segment an EOQ is calculated. There are two probable requests:
(2) Select the quantity that leads to the lowest total inventory costs (i.e. Purchase, Ordering & Carrying).
1. Compute the predetermined overhead rate.
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