WEBSTER'S SUPPLIER OFFERS A DISCOUNT OF 2.0% ON ORDERS OF 1,250 SHOULD WEBSTER TAKE THE DISCOUNT Original Economic Order EOQ = 2(E) (S) (C) (P) 2$1,000) (5,000) 0.2 $200 V250,000 = 500 units. WHEN 500 UNITS ARE ORDERED EACH TIME AN ORDER IS PLACED, TOTAL INVENTORY COSTS EQUAL TIC = CP(Q/2) + F(S/Q) = 0.2(S200)(500/2) + $1,000(5,000/500) = $40(250) + $1,000(10) = $10,000+ $10,000 = $20,000. NOW SUPPOSE WEBSTER'S SUPPLIER OFFERS A DISCOUNT OF 2.0 PERCENT ON ORDERS OF 1,250. IF WEBSTER INCREASES ITS ORDER QUANTITY TO 1,250 UNITS, THEN ITS TOTAL COSTS FOR THE OPERATING INVENTORY WOULD BE TIC = CP(Q/2) + F(S/Q) THE INCREMENTAL ANNUAL COST OF TAKING THE DISCOUNT IS HOWEVER, WEBSTER WOULD SAVE 2 PERCENT ON EACH CHIP, TOTAL ANNUAL SAVINGS OF THE NET EFFECT IS THAT WEBSTER WOULD SAVE IF IT TAKES THE DISCOUNT, AND HENCE IT SHOULD THE DISCOUNT OFFER