S. a smartphone manufacturer, uses 20,000 memory chips per month. Their trucking company charges S. €300 per shipment, independent of the quantity purchased. The manufacturer offers an all unit quantity discount with a price of €1 per memory chip for orders under 18,000 units, €0.96 per chip for orders between 18,000 and 36,000 units, and €0.92 per chip for orders larger than 36,000 units. S. incurs a holding cost of 15 percent.  

What is the optimal order quantity for S.?  

What is the annual cost of such a policy?  What is the cycle inventory of memory chips at S.? 

How does it compare with the cycle inventory if the manufacturer does not offer a quantity discount but sells all chips at €1, €0.96 and €0.92 per unit respectively?

Answer rating: 100% (QA)

SOLUTION To determine the optimal order quantity for S we can use the Economic Order Quantity EOQ model The EOQ formula is given by EOQ 2DSH Where D A... View the full answer