Incremental Discount Practice Question

You run the inventory department at the global retailer, Dog World One of your products, a food and water bowl

set, has an annual demand of $2500$ units per year and they cost you $$22$ each. Your inventory holding charge is

$25\%$ per year and you estimate it costs about $$175$ to place an order. The supplier requires you to order in

increments of $10$ at a time.

$1.$ What is your economic order quantity for this item?

Your supplier has offered you an incremental discount on their product. You will receive a $5\%$

discount on the items ordered that are above $500$ units and a $10\%$ discount off of those items ordered

that are above $750$ units. So$,$

$-$ If you order $400$ then you pay full price for all items

$-$ If you order $600$ then you pay full price for the first $500$ items, and $5\%$ discounted price for the

last $100$ items

$-$ If you order $800$ then you pay full price for the first $500$ items, $5\%$ discounted price for the next

$250$ items, and $10\%$ discounted price for the last $50$ items.