Answered: BIKO is a bike retailer located in the…

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

Section: Chapter Questions

Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...

See similar textbooks

Related questions

Question

BIKO is a bike retailer located in the outskirts of Paris. BIKO purchases bikes from PMX in orders of 250 bikes which is the current economic order quantity. PMX is now offering the following bulk discounts to its customers:

2% discount on orders above 200 units
4% discount on orders above 500 units
6% discount on orders above 600 units

BIKO is wondering if the EOQ model is still the most economical and whether increasing the order size would actually be more beneficial. Following information is relevant to forming the decision:

Annual demand is 5000 units
Ordering cost is $100 per order
Annual holding cost is comprised of the following:
- 5% insurance premium for the average inventory held during the year calculated using the net purchase price
- Warehousing cost of $6 per unit
Purchase price is $200 per unit before discount

(Hint: We need to compare the total inventory cost of the order quantities at the various discount levels with that of the economic order quantity)

Expert Solution