C for P = $4.00 C for P = $3.50 C for P = $3.00 Total annual cost, $ Purchase quantity, Q 0 100 200 (a) Total cost curves with purchased materials added Purchase Discounts Total Cost Curves First price break Second price break
Beginning with the lowest price, calculate the EOQ for each price level until a feasible EOQ is found.
it is feasible if the quantity lies in the range corresponding to its price.
As subsequent prices are larger than the previous one, the holding cost, H , ( H = i·P ) gets larger.
Since H is in the denominator of the EOQ formula, the EOQ gets smaller .
Purchase Discounts Solution Procedure
Purchase Discounts Example Annual demand = 936 units Ordering cost = $100.00 Holding cost = 25% of unit price Order Quantity Price per Unit 0 - 249 $60.00 250 - 499 $59.00 500 or more $58.00