Question

A university bookstore buys mechanical pencils from a wholesaler. The wholesaler offers discount for large order quantity per shipment according to the following price schedule:

Order Quantity Price Per Unit
1 to 200 $4.00
201 to 1,000 $3.60
1,001 to 2,000 $3.40
2,001 and greater $3.25
The bookstore expects an annual demand of 2,500 units. It costs $10 to place an order, and the annual cost of holding a unit in stock is 30% of the unit’s procurement price. Determine the best order quantity.

Answer 1

226 units

Step-by-step explanation:

Formula :
`\sqrt{(2 * Annual Demand * Ordering Cost)/(Holding Cost)`

`\sqrt{(2*2500*10)/(0.3*3.25) }` = 226

The economic order quantity is the minimum amount of inventory that a seller must keep to demand and lower the holding cost. The reorder point is the inventory management system in which a certain level of inventory is set as a trigger for reordering the stock. Ordering cost is determined by the number of order placed.