Quantity Discounts
Quantity Discount Model
• Answers how much to order &
when to order
• Allows quantity discounts
– Reduced price when item is purchased in
larger quantities
– Other EOQ assumptions apply
• Trade-off is between lower price &
increased holding cost
Quantity Discount Model
Total
Cost
Order
Quantity
Quantity Discount Model
Total
Cost
Base
Price
Disc.
Price 1
Discount
Quantity 1
Order
Quantity
Quantity Discount Model
Total
Cost
Base
Price
Disc.
Price 1
Discount
Quantity 1
Disc
Price 2
Discount
Quantity 2
Order
Quantity
Quantity Discount Model
Total
Cost
Base
Price
Disc.
Price 1
Discount
Quantity 1
Disc.
Price 2
Discount
Quantity 2
Total Cost
Base Price
Order
Quantity
Quantity Discount Model
Total
Cost
Disc.
Price 1
Base
Price
Q*
Disc.
Qty 1
Disc.
Price 2
Disc.
Qty 2
Total Cost
Base Price
Order
Quantity
Quantity Discount Model
Total
Cost
Disc.
Price 1
Base
Price
Disc.
Price 2
Total Cost
Base Price
Outside
discount
range
Q*
Disc.
Qty 1
Disc.
Qty 2
Order
Quantity
Quantity Discount Model
Total
Cost
Base
Price
Disc.
Price 1
Discount
Quantity 1
Disc.
Price 2
Discount
Quantity 2
Total Cost
Base Price
Total Cost
for Disc. 1
Order
Quantity
Quantity Discount Model
Total
Cost
Disc.
Price 1
Base
Price
Q*
Disc.
Qty 1
Disc.
Price 2
Disc.
Qty 2
Total Cost
Base Price
Total Cost
for Disc. 1
Order
Quantity
Quantity Discount Model
Total
Cost
Disc.
Price 1
Base
Price
Disc.
Price 2
Total Cost
Base Price
Total Cost
for Disc. 1
Outside
discount
range
Outside
discount
range
Q*
Disc.
Qty 1
Disc.
Qty 2
Order
Quantity
Quantity Discount Model
Total
Cost
Disc.
Price 1
Base
Price
Disc.
Price 2
Total Cost
Base Price
Total Cost
for Disc. 1
X
Adjusted Q* Disc.
Qty 1
Disc.
Qty 2
Order
Quantity
Quantity Discount Model
Total
Cost
Disc.
Price 1
Base
Price
Disc.
Price 2
Total Cost
Base Price
Total Cost
for Disc. 1
Total Cost
for Disc. 2
Disc.
Qty 1
Disc.
Qty 2
Order
Quantity
Quantity Discount Model
Total
Cost
Base
Price
Disc.
Price 1
Disc.
Price 2
Total Cost
Base Price
Total Cost
for Disc. 1
Total Cost
for Disc. 2
Q*
Disc.
Qty 1
Disc.
Qty 2
Order
Quantity
Quantity Discount Model
Total
Cost
Base
Price
Disc.
Price 1
Disc.
Price 2
Total Cost
Base Price
Total Cost
for Disc. 1
Total Cost
for Disc. 2
Outside
discount
range
Q*
Disc.
Qty 1
Disc.
Qty 2
Order
Quantity
Quantity Discount Model
Total
Cost
Base
Price
Disc.
Price 1
Disc.
Price 2
Total Cost
Base Price
Total Cost
for Disc. 1
Total Cost
for Disc. 2
X
Adjusted Q*
Disc.
Disc.
Qty 1
Qty 2
Order
Quantity
Quantity Discount Model
Total
Cost
Disc.
Price 1
Base
Price
Disc.
Price 2
Total Cost
Base Price
Total Cost
for Disc. 1
Total Cost
for Disc. 2
Quantity
Ordered
Lowest cost not in
discount range
Disc.
Qty 1
Disc.
Qty 2
Order
Quantity
Quantity Discount Model
• Compute EOQ for each quantity discount price
• Is computed EOQ in discount range?
– If not, use the lowest cost quantity in discount range
• Compute total cost for EOQ or lowest cost
quantity in discount range
• Select quantity with lowest total cost