Given Demand D= 10,000 units per year Unit cost p = $ 10 Ordering cost S = $30 Cost of carrying inventory I = 20%= Holding cost H= I*P = .2* 10 = $2 EOQ =\sqrt{(2*D*S)/H} EOQ =\sqrt{(2*10,000*30)/2} EOQ= 547.7 \approx 548 Total cost = annual carrying cost +annual ordering cost + annual purchase cost = (Q/2)H + (D/Q)S + pD = (548/2)*2 +(10,000/548)*30 + 10*10,000 = 548 + 547.44 + 1,00,000 = $101095.44 The supplier offers a discount of 3% on orders of 1000 units or more Annual purchase cost (pD)= 10*10000* 97% = $ 97000 Annual Holding cost (Q*H/2)= (1000*2*.97)/2 = 1940/2 = $970 Annual Ordering cost (DS/Q) = (10000*30)/1000 = $300 Total cost = annual carrying cost +annual ordering cost + annual purchase cost = $97000 +$970 + $300 = $ 98270 Total cost difference = $101095.44 - $ 98270 = $ 2825.45 The saving of accepting the discount is $ 2825.45