Question: The Alpha Corporation's demand for a particular raw material is constant at 5,000 units per 90-day period. Fixed ordering costs are $60 and holding costs per unit for 90 days are $7 .50. The material costs $35 per unit.
(a) What is the economic order quantity, and how often are orders placed?
(b) Assume that the supplier provides a quantity discount if orders of 500 units or more are placed. What would the minimum magnitude of the quantity discount (in percent of purchase price) have to be to make it attractive to order in batches of 500 units?