Regions Financial Group in Birmingham, AL purchases light bulbs from Brightall Company.

Regions Financial Group in Birmingham, AL purchases light bulbs from Brightall Company. Formerly, Regions Corp. ordered from Brightall 800 cases each time, to meet an annual need (demand) for 9,600 cases. Purchasing cost (P: retail price) was $5.00 per case. Now, Brightall is offering quantity discounts. Below is the published all units discount schedule for cases of Brightall light bulbs:

 

Quantity Price
< 500=””> $5.00/case
500-999 cases $4.75/case
1000-1999 cases $4.50/case
>= 2000 cases $4.25/case

Orders are placed and filled at a cost of $50 per order (Ordering Cost (S)= $50 per order). Inventory holding cost is estimated at 20% of purchase cost, per item, per year. Under the new discount plan, determine your best strategy for purchasing and inventory managment.

a. What is the best ordering quantity (EOQ with quantity discounts, EOQ*QS) to minimize the total costs?

b. What is the annual total costs at EOQ*QS? (Hint: EOQ*QS= Inventory holding cost+purchasing cost)

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