EOQ Model with quantity discounts
Circumstances frequently occur where firms are able to obtain quantity discounts for large purchase orders. Buying in bulkiness has some merits and demerits.
Advantages:(i) A saving in purchase rule decreases in unit cost, which consists of the total amount of discount for the period.
(ii) A reduction in the total ordering costs because fewer orders are placed to take advantages of the discounts.Disadvantages:
Increased holding cost arising from higher stock levels when large quantities are purchased. Like:
• Stock out cost• Insurance• Deterioration• Security etc.