A company has an annual demand of 12,000 units for a product. The ordering cost is ₦500 per order and the holding cost is 20% of the unit cost per year. The supplier offers the following quantity‑discount schedule:

- 1-499 units: ₦150 per unit
- 500-999 units: ₦140 per unit
- 1,000 units or more: ₦130 per unit

Determine the order quantity that minimises the total annual cost and state the minimum total cost (including purchase, ordering and holding costs).

Question

A company has an annual demand of 12,000 units for a product. The ordering cost is ₦500 per order and the holding cost is 20% of the unit cost per year. The supplier offers the following quantity‑discount schedule:

- 1-499 units: ₦150 per unit
- 500-999 units: ₦140 per unit
- 1,000 units or more: ₦130 per unit

Determine the order quantity that minimises the total annual cost and state the minimum total cost (including purchase, ordering and holding costs).

Accepted Answer

Order 1,000 units; minimum total annual cost = ₦1,579,000

Waec Model Questions Vol1 2023 Commerce Question 36

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