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  • W 2AS or CP 2AS EOQ

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    Krishna Kumar
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    1) The document discusses calculating the economic order quantity (EOQ) and total annual costs for inventory ordering decisions. The EOQ formula balances annual ordering costs with annual carrying costs to minimize total costs. 2) When quantity discounts are offered, the problem is restated as choosing between total inventory costs of two order quantities - either the EOQ or a discounted quantity. 3) To determine if a discount is advantageous, calculate the EOQ and compare it to the discounted quantity. If the EOQ is larger, take the discount. If not, calculate total annual costs of both options and select the lower cost option.

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    EOQ formulae

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    1) The document discusses calculating the economic order quantity (EOQ) and total annual costs for inventory ordering decisions. The EOQ formula balances annual ordering costs with annual carrying costs to minimize total costs. 2) When quantity discounts are offered, the problem is restated as choosing between total inventory costs of two order quantities - either the EOQ or a discounted quantity. 3) To determine if a discount is advantageous, calculate the EOQ and compare it to the discounted quantity. If the EOQ is larger, take the discount. If not, calculate total annual costs of both options and select the lower cost option.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    7 views2 pages

    W 2AS or CP 2AS EOQ

    Uploaded by

    Krishna Kumar
    1) The document discusses calculating the economic order quantity (EOQ) and total annual costs for inventory ordering decisions. The EOQ formula balances annual ordering costs with annual carrying costs to minimize total costs. 2) When quantity discounts are offered, the problem is restated as choosing between total inventory costs of two order quantities - either the EOQ or a discounted quantity. 3) To determine if a discount is advantageous, calculate the EOQ and compare it to the discounted quantity. If the EOQ is larger, take the discount. If not, calculate total annual costs of both options and select the lower cost option.

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    © All Rights Reserved
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    of 2

    DESIGNING SUPPLY CHAINS

    EOQ COSTS

    A
    Annual Order Costs = S
    Q
    1 1
    Annual Carrying Costs = QCP or QW
    2 2
    1 A
    Total Costs = QCP + S
    2 Q
    2AS 2AS Where :
    EOQ = or
    CP W A = Annual Demand
    Q = Order Quantity
    C = Cost per Unit of Inventory
    S = Cost per Order or Setup
    P = Carrying Cost as a Percentage
    W = CP or the Annual Cost to Carry One Unit in Dollars

    23/10/20 1
    DESIGNING SUPPLY CHAINS
    PURCHASE POINT DISCOUNT

    When offered quantity discounts, the problem may be restated in terms of a


    choice between total inventory cost on two different orders.

    To determine whether a quantity discount offers a true advantage, you must:


    1. Calculate the EOQ. If the EOQ is greater than the quantity required to
    take advantage of the discount, then do so. If not, move to step 2.
    2. Calculate the total annual costs of both options and select the option
    with the lowest annual total costs.

    1 A
    Total Cost = QCP + S + AC
    2 Q

    23/10/20 2

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