‘To compute the Economic Order Quantity (E0Q) for each price break, we'll follow these steps: 41. Calculate the unit price for each price break. 2. Compute the carrying cost per unit. S. Use the EOQ formula for each price break. Let's start with the calculations: |L, Galeulate the unit price for each price break + For the first price break (1-499 units), the unit price is N20. * For the second price break (500-999 units), the unit price after a 7% discount is 3420 (0.07 820) — 818.60. * For the third price break (1000-1499 units), the unit price attera 15% discount is #20 (0.15 = 320) — 3317.00. * For the fourth price break (1500 or more units), the unit price after a 23% discount is 820 (0.23 x 3820) — 815.40. 2. Compute the carrying cost per unit: * The carrying cost per package per year is given as 28% of the unit price. For each price break: * For the first price break. the carrying cost per unit is 0.28 x 320 — 5.60. * For the second price break, the carrying cost per unit is 0.28 $418.60 — 86.. * For the third price break, the carrying cost per unit is 0.28 x 917.00 = 4.76. * For the fourth price break, the carrying cost per unitis 0.28 x 3815.40 — NA. 1.3. Use the E0Q formula for each price break: x Demand x Orderin: Carrying Cost per Unit E0Q = Now let's calculate the E0Q for each price break using the given values: * Demand (Demand) = 15,000 packages per year * Ordering Cost (Ordering Cost)= N45 For the first price break (unit price = #20, carrying cost per unit = N5.60): 2 15,000 « 45, 1,350,000 BOQ: = = ® y aS © VHT OTL ~ 491 For the second price break (unit price = N18.60, carrying cost per unit = NS.21): 209, ~ fA. LAIOM ass res ~ 08 5.21 5.21 For the third price break (unit price = 41700, carrying cost per unit = 4.76): 2x 15,000 x45 /1,350,000 po £0Qs arn Vag 288, 61845 = 532 For the fourth price break (unit price = N15.40, carrying cost per unit = #433): SUN /SI1, 100.82 ~ 558, So, the £09 for each price break is approximately: + F0Q; = 491 + F0Q2 = 508 + FOQs = 532 + BOQ, — 558 “These values represent the optimal order quantities for each price break that minimize total inventory costs. waeTo determine the optimum total cast for each price break, we need to calculate the total cost associated with ordering and carrying inventory for each EOQ value and then compare them to. find the minimum total cost. ‘The total cost (TC) comprises two components: ordering cost and carrying cost. 4. Ordering Cost: This is the cost incurred each time an order is placed and is calculated as the ordering cost per order multiplied by the number of orders placed in a year. Ordering Cost — Ordering Cost per Order x Number of Orders Demand Number of Orders = —=5o™ 2. Carrying Cost: ‘This is the cost associated with holding inventory and is calculated as the carrying cost per unit multiplied by the average inventory level. Carrying Cost = Carrying Cost per Unit x Average Inventory EOG Average taventoy = 208Total Cost: Total Cost = Ordering Cost + Carrying Cost Let's calculate the total cost for each price break using the EOQ values we found earlier and the given data, For the first price break (EOQ = 491): + Ordering Cost per Order = N45 * Carrying Cost per Unit = #4560 15000 Number of Orders; = py ~ 30.58 Ordering Cost, ~ 45 < 30.53 = 1373.85 naira agi = 245.5 Average Inventory; — 2 Carrying Cost, — 40 x 245.5 © 1373.80 naira Ordering Cost, = 45 x 30.53 © 1373.85 naira 91 Average Inventory; => = 245.5 Carrying Cost, — 5.60 » 245.5 ~ 1373.80 naira ‘Total Cost, ~ 1373.85 + 1373.80 ~ 2747.65 naira Similarly, we calculate the total cost for the other price breaks using their respective EOQ values. For the second price break (E0Q = 508): * Ordering Cost per Order = 45 * Carrying Cost per Unit =N5.21 15000 Number of Orders, ~ T= = 29.53 Ordering Costy ~ 45 < 29.53 ~ 1328.85 naira 508 Average Inventory, = = 254 Carrying Cost, — 5.21 » 254 ~ 1323.34 naira ‘Total Costy ~ 1828.85 + 1323.34 ~ 2652 19 naira ‘Continue these calculations for the third and fourth price breaks. ‘We'll compare these total costs to find the optimum price.