A jeweller orders gems in lot sizes of 1,250 gems. The annual demand for emeralds is 6,250 gems. Ordering costs are $200 per order and carrying costs are $10 per unit annually.
Required:
a. Determine the economic order quantity.
b. Determine the amount of annual cost savings if the company changes from an order size of 1,250 units to the economic order size.
c. One supplier offers a discount of $2 per unit off the purchase price of orders in lots of 625 units or more. What impact would this have on the EOQ and should the order size be changed?

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The Answer of A jeweller orders gems in lot sizes of 1,250 gems. The annual demand for emeralds is 6,250 gems. Ordering costs are $200 per order and carrying costs are $10 per unit annually.
Required:
a. Determine the economic order quantity.
b. Determine the amount of annual cost savings if the company changes from an order size of 1,250 units to the economic order size.
c. One supplier offers a discount of $2 per unit off the purchase price of orders in lots of 625 units or more. What impact would this have on the EOQ and should the order size be changed?

A Jeweller Orders Gems in Lot Sizes of 1,250 Gems