# Operation Management ( Choosing the Best Order Quantity When There Is Quantity Discount) Essay

349 Words2 Pages
Practice Problem Choosing the best order quantity when there is quantity discount D = 750 S = \$160 per order h = 30% \$7, &lt;450 \$5, 450 or more EOQ = 2×D×Sh×C EOQ5 = 2×750×1600.30×5 = 400 EOQ7 = 2×750×1600.30×7 ≈ 338 Calculations: Price | Order Quantity | Annual Purchasing Cost | Annual Ordering Cost | Annual Holding Cost | Annual Total Cost | C | Q | D×C | DQ×S | Q2×(h×C) | | \$ | | \$ | \$ | \$ | \$ | | | | | | | 5 | 450 | 750×5 | 750450×160 | 4502×0.30×5 | 3750 + 266.67 + 337.50 | | | | | | | 7 | 338 | 750×7 | 750338×160 | 3382×0.30×7 | 5250+355.03+354.90 | Results: Price | Order Quantity | Annual Purchasing Cost | Annual Ordering Cost | Annual Holding Cost | Annual Total Cost | C | Q | D×C | DQ×S | Q2×(h×C) | | \$ | | \$ | \$ | \$ | \$ | | | | | | | 5 | 450 | 3750 | 266.67 | 337.50 | 4354.17 | | | | | | | 7 | 338 | 5250 | 355.03 | 354.90 | 5959.93 | We are going to place an order quantity of 450 to enjoy running the operation with the lowest annual total cost. Problem on ABC analysis (Number 5, Chap-9, Pg-357, 10th Edition) Oakwood Hospital: SKU Number | Quantity Used per Year | | Unit Value (\$) | | Annual Dollar Usage (\$) | 1 | 1200 | × | 0.01 | = | 12 | 2 | 120000 | × | 0.03 | = | 3600 | 3 | 100 | × | 0.45 | = | 45 | 4 | 44000 | × | 1.00 | = | 44000 | 5 | 900 | × | 4.50 | = | 4050 | 6 | 350 | × | 0.90 | = | 315 | 7 | 70000 | × | 0.30 | = | 21000 | 8 | 200 | × | 1.50 | = | 300 | Total | 73322 | SKU No. | Quantity Used/Year | Value | Dollar Usage \$ | % of Total | Cumulative % of Dollar Value | Cumulative % of SKU | Class | 4 | 44000 | 1.00 | 44000 | 60.01% | 60.01% | 12.5% | A | 7 | 70000 | 0.30 | 21000 | 28.64% | 88.65% | 25.0% | B | 5 | 900 | 4.50 | 4050 | 5.52% | 94.17% | 37.5% | B | 2 | 120000 |