A retailer buys a special kind of toy from an overseas supplier, and sells it locally...

 

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A retailer buys a special kind of toy from an overseas supplier, and sells it locally in Singapore. The demand for the toy is steady at a rate of 500 units/month. The fixed cost of placing an order is $400. The inventory holding cost rate is 25% per year. The retailer is engaged in negotiations with the supplier regarding the purchase price. The supplier has proposed 2 pricing schemes, as summarized in Table 2. Table 2 Unit price (S/unit) Pricing Scheme Q< 1000 Q≥1000 All-units discount 20 19.8 Incremental discount 20 19.4 (a) Under all-units discount, the unit price would be $20 for any order less than 1000 units, and $19.8 for any order at or above 1000 units. Determine the optimal order size for the retailer and the total annual cost (including purchasing, ordering, and inventory holding costs). (10 marks) (b) Under the incremental discount scheme, the unit price would be $20 for the first 1000 units, and $19.4 for the remaining quantity. In other words, the discount only applies to the incremental part of the order beyond 1000 units. Determine the optimal order size for the retailer and the total annual cost. (10 marks) A retailer buys a special kind of toy from an overseas supplier, and sells it locally in Singapore. The demand for the toy is steady at a rate of 500 units/month. The fixed cost of placing an order is $400. The inventory holding cost rate is 25% per year. The retailer is engaged in negotiations with the supplier regarding the purchase price. The supplier has proposed 2 pricing schemes, as summarized in Table 2. Table 2 Unit price (S/unit) Pricing Scheme Q< 1000 Q≥1000 All-units discount 20 19.8 Incremental discount 20 19.4 (a) Under all-units discount, the unit price would be $20 for any order less than 1000 units, and $19.8 for any order at or above 1000 units. Determine the optimal order size for the retailer and the total annual cost (including purchasing, ordering, and inventory holding costs). (10 marks) (b) Under the incremental discount scheme, the unit price would be $20 for the first 1000 units, and $19.4 for the remaining quantity. In other words, the discount only applies to the incremental part of the order beyond 1000 units. Determine the optimal order size for the retailer and the total annual cost. (10 marks)

Answer rating: 100% (QA)

2 a Optimal order size 2Annual demandOrdering costHolding cost 26... View the full answer