EOQ Worksheet: Due Wednesday, Feb 21
Team Names: 1. _____________________,  2. _____________________
Economic Order Quantity with Discounts
We will need 5000 cases of organic peanut butter for our year's sales. The organic peanut butter wholesale price is $10 per case. A new company handles trucking and raised the price of each order to $80 for shipping and handling. The cost of storing is $1.25 per case of average inventory.

Initial Setup
Start by making the basic definitions.

Continuous Model (no discount)
Add the three basic costs, base, order, and storage, to define the EOQ function.

Use standard calculus techniques to find the order size that gives minimum cost, the economic order quantity.

Piecewise Continuous Model (with discount)
The supplier offers us a 2% discount if we order at least 2500 cases per shipment.
Is it worth raising our order level?

Define a discount function so that we can insert it into our EOQ function directly.

The discount function for our situation is Discount(2500, 0.02, x).

Define a new EOQfunction that incorporates our discount.

Plot and check to see if the discount is worth having.

Yes! The new curve dips below the old mincost. What is the new cost?

We save by ordering 2500 cases each time.
Animated Adjustments Examples
Select the plots below and use the controls in the toolbar to watch the animation. (Ignore the Maple statements.)

Project Problems
Adjust the discount percentage.
Find a discount percentage greater than 1% that is not worth having; i.e., the cost is just larger than .

Adjust the discount level.
Find the discount level of a number above 2500 cases to be just large enough that the discount is not worth having.