Order instructions

Toshiba wants to reduce a large stock of its 1TB portable hard disks that it is discontinuing. The original price of this model is $50 regardless of order size. Now Toshiba offers its trade customers, such as Office works, a quantity discount pricing schedule as follows:

Order QuantityPrice Per Unit
1 – 100$50
101 – 200$46
201 or more$42

Officeworks wants to consider the offer. The annual holding cost for a portable hark disk for Office works is 20% of the unit cost, the ordering cost is $200, and monthly demand for this model of portable hard disk is 30 units on average. Office works wants to determine if it should take advantage of this discount or order the basic EOQ order size.

(a) What is the economic order quantity (EOQ) of the portable hard disk for Office works if there is no quantity discount? (2 marks)

(b) What is the total annual cost for Office works if it does not take the discount from Toshiba and orders within the no-discount range? (2 marks)

(c) What is the optimal order quantity if Office works decides to take the volume discount? (Note: You will need to consider all the levels of discount.) (4 marks)

(d) What is the new total annual cost for Office works upon taking the volume discount? (1 mark)

(e) What is the annual saving for Office works upon taking the volume discount? (1 mark)

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