The Radford hardware store expects to sell 1,500 electric garbage disposal units in the coming year. Demand for this product is fairly stable over the year. It costs $20 to place an order for these units and the company assumes a 20% annual holding cost on inventory. The following price structure applies to Radford’s purchases of this product:

So if Radford orders 135 units, they pay $35 per unit; if they order 650, they pay $33 per unit; and if they order 1,200, they pay $31 per unit.
a. What is the most economical order quantity and total cost of this solution? (Solve a separate EOQ problem for each of the order quantity ranges given and select the solution that yields the lowest total cost.)
b. Suppose the discount policy changed so that Radford had to pay $35 for the first 499 units ordered, $33 for the next 500 units ordered, and $31 for any additional units. What is the most economical order quantity and what is the total cost of thissolution?

Transcribed Image Text:

Order Quantity 500 to 999 1,000 and up 0 to 499 $35 Price per Unit $33 $31