EOQ with Quantity Discount Calculator
Price Discount Tiers
| Min Quantity | Unit Price ($) | Action |
|---|---|---|
| - | ||
What is EOQ with Quantity Discounts?
The Economic Order Quantity (EOQ) with Quantity Discount model is an advanced inventory management tool used by businesses to determine the most cost-effective order size. Unlike the standard EOQ formula, which assumes a fixed purchase price regardless of volume, this model accounts for the reality that suppliers often offer lower prices per unit when items are bought in bulk.
This calculator evaluates the trade-off between reduced purchase prices and increased inventory holding costs. While buying more units reduces the cost per item and the total number of annual orders, it increases the capital tied up in stock and storage expenses. The goal is to find the "sweet spot" where the total annual cost—comprising ordering costs, holding costs, and purchase costs—is at its absolute minimum.
How to Use This Calculator
To find your optimal ordering strategy, follow these steps:
- Enter Annual Demand: Input the total number of units your business expects to sell or use over one year.
- Set Ordering Cost: This is the flat fee associated with placing a single order (shipping, processing, labor).
- Define Holding Cost: Enter the cost to store one unit for a year, expressed as a percentage of the unit price (carrying cost).
- Input Tiers: Add the different price points offered by your supplier. For example, 0-499 units at $100, and 500+ units at $95.
- Calculate: The tool will analyze every tier to determine if the EOQ is feasible and compare it against the price break points.
FAQs about Quantity Discounts
Should I always take the biggest discount?
Not necessarily. While a bulk discount reduces the purchase price, it significantly increases your holding costs. If the cost of storing the extra inventory exceeds the savings from the discount, it is better to stick to a smaller order quantity.
What is a "feasible" EOQ?
A feasible EOQ is a calculated order quantity that actually falls within the range required for that specific price tier. If the formula suggests ordering 200 units to get a price that only applies to orders over 1000 units, that EOQ is "unfeasible," and the calculator must check the minimum quantity of that tier (1000 units) instead.