CK Electronics uses the EOQ model to order aluminum frames from its supplier. CK requires 5,000 frames
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Question:
CK Electronics uses the EOQ model to order aluminum frames from its supplier. CK requires 5,000 frames per year for the manufacturing process. The carrying cost is calculated by multiplying their cost of capital (40%) times the purchase cost per unit of the frames. Their ordering cost is $200 per order. The frame supplier has suggested the following price schedule to CK:
Order Quantity (per order) | Price per Frame |
0-999 | $50 |
1000 and above | $45 |
(E.g., If order quantity were 1,100 frames, each frame would cost $45)
Question - Should they stick to their EOQ policy or order 1,000 each time to obtain the discount price? Assume stock-out costs are zero.
Related Book For
Intermediate Financial Management
ISBN: 978-1111530266
11th edition
Authors: Eugene F. Brigham, Phillip R. Daves
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