We need 1,000 electric drills per year. The ordering cost for these is $100 per order and the carrying cost is assumed to be 40% of the per unit cost. In orders of less than 130, drills cost $70; for orders of 130 or more, the cost drops to $60 per unit. Should we take advantage of the quantity discount?
Expert Answer
Qp ($70) = Square root of [(2*1000*100) / (0.4 * 70)] = 84.5 units (appr. 85 units)
Qp ($60) = Square root of [(2*1000*100) / (0.4 * 60)] = 91 units (130 to take advantage of quality discount)
Hence,
OR
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OR
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