You manage a product with demand rate of 1600 units per year. The fixed order cost is $10, and the variable purchasing cost is $4 per unit. You calculate holding cost at $0.80 per unit per year. EOQ=200 units
Suppose your supplier offers the following incremental order discount: If you order more than 250 units, the purchase cost for units ordered above 250 is decreased to $3.80; the first 250 units still cost $4 each. Does you order quantity change? If yes, what is the new quantity? Does your yearly cost change, and by how much if so?