2000 adjusted The third step is to use Equation (12-9 and compute a total cost for each order quantity. This taken with the aid of Table 12.3. which presents the computations for each level of discount introdited in Table 12.2. Discount Number 1 Unit Order Price Quantity $5.00 700 $4.80 1000 $4.75 2000 Annual Annual Annual Product Cost Ordering Cost Holding Cost $25 000 $350.00 $350 $24 000 $245.00 $480 $23 750 $122.50 $950 Total $25 700.00 $24 725.00 2 3 $24 822.50 The fourth step is to select that order quantity with the lowest total cost. Looking at Table 12.3. you can see that an order quantity of 1000 toy race cars will minimize the total cost. You should see. however, that the total cost for ordering 2000 cars is only slightly greater than the total cost for orderin 1000 cars. Thus, if the third discount cost is lowered to $4.65. for example, then this quantity might be the one that minimizes total inventory cost. INSIGHT > The quantity discount model's third cost factor, annual product cost is now a major variable with impact on the final cost and decision. It takes substantial increases in order and holding: costs to compensate for a large quantity price break. LEARNING EXERCISE Wohl's has just been offered a third price break. If it orders 2500 or more cars at a time, the unit cost drops to $4,60. What is the optimal order quantity now? Answer fef94281 95