Operations Management: Processes and Supply Chains, 12th Edition

Solved Problem 2

A hospital buys disposable surgical packages from Pfisher, Inc. Pfisher’s price schedule is $50.25 per package on orders of 1 to 199 packages and $49.00 per package on orders of 200 or more packages. Ordering cost is $64 per order, and annual holding cost is 20 percent of the per-unit purchase price. Annual demand is 490 packages. What is the best purchase quantity?

MyLab Operations Management Video

Solution

We first calculate the EOQ at the lowest price:

$$EO{Q}_{49.00}=\sqrt{\frac{2DS}{H}}=\sqrt{\frac{2\left(490\right)\left(\text{\$}64.00\right)}{0.20\left(\text{\$}49.00\right)}}=\sqrt{6,400}=80\text{ packages}$$

This solution is infeasible because, according to the price schedule, we cannot purchase 80 packages at a price of $49.00 each. Therefore, we calculate the EOQ at the next lowest price ($50.25):

$$EO{Q}_{50.25}=\sqrt{\frac{2DS}{H}}=\sqrt{\frac{2(490}{}}$$