1. Assignment Ch12(b)
A small manufacturing firm uses approximately 3400 pounds of chemical dye per year. Currently the firm purchases 300 pounds per order and pays $3 per pound.
The ordering cost is $100 and inventory carrying cost is 51 cents per unit per year.
D= 3400, S= 100, H=.51
a) The supplier has just announced that orders of pounds and more will be filled at a price of $2 per pound. Determine the order size that will minimizes the total cost.
b) If the supplier offered a discount at 1500 pounds instead of 1000 pounds, what order size will minimize total cost?

2. Ordering and Carrying Costs
The Total-Cost Curve is U-Shaped
Annual Cost
Ordering Costs QO
(optimal order quantity)
Order Quantity (Q)

3. Ordering, Carrying, and Purchasing Costs
Adding Purchasing cost doesn’t change EOQ
TC with PD
TC without PD PD
EOQ
Quantity

4. Price Discount p1
Cost p2
Quantity

5. Total Cost Including Purchasing Cost
EOQ
Quantity

6. Price Breaks: EOQ Preferred
Cost
EOQ
Quantity

7. Price Breaks: Discount Point Preferred
Cost
Quantity Q

8. Price Breaks: EOQ Preferred
Cost
EOQ
Quantity

9. DONE The Problem: Part A
A small manufacturing firm uses approximately 3400 pounds of chemical dye per year. Currently the firm purchases 300 pounds per order and pays $3 per pound.
The ordering cost is $100 and inventory carrying cost is 51 cents per unit per year.
D=3400, S= 100, H=.51
a) The supplier has just announced that orders of pounds and more will be filled at a price of $2 per pound.
Q P ≥
DONE

10. The Problem: Part B
A small manufacturing firm uses approximately 3400 pounds of chemical dye per year. Currently the firm purchases 300 pounds per order and pays $3 per pound.
The ordering cost is $100 and inventory carrying cost is 51 cents per unit per year.
D=3400, S= 100, H=.51
b) Determine the order size that will minimizes the total cost.
If the supplier offered a discount at 1500 pounds instead of 1000 pounds, what order size will minimize total cost?
Q P ≥

11. The Problem: Part B D= 3400, S=100, H= .51 TC = HQ/2 + SD/Q + PD
b) If the supplier offered a discount at 1500 pounds instead of 1000 pounds, what order size will minimize total cost?
Q P ≥
D= 3400, S=100, H= .51
TC = HQ/2 + SD/Q + PD
TC ( Q = 1155 , P = 3) = 0.51(1155)/ (3400)/ (3400)
TC = = 10789
TC ( Q = , P = 2) = 0.51(1500)/ (3400)/ (3400)
TC = =