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SINGLE-PERIOD INVENTORY MODEL WITH PROBABILISTIC DEMAND 427

Table 10.4 Total Annual Cost Calculations for the EOQ Model with Quantity Discounts
Annual Cost, E
Discount Category Unit Cost, E Order Quantity Holding Ordering Purchase Total

1 5.00 700 350 350 25 000 25 700
2 4.85 1 000 485 245 24 250 24 980
3 4.75 2 500 1 188 98 23 750 25 036

Figure 10.7 Total Cost Curves for the Three Discount Categories

27 000

Discount Category 1 Curve

26 000
Total Cost (€) € 25 700 Discount Category 2 Curve

Discount Category 3 Curve
25 000
€ 24 980 € 25 036

Discount Discount Discount
24 000 Category 1 Category 2 Category 3
Q 999 1000 Q 2499 Q 2500

500 1000 1500 2000 2500 3000
Order Quantity Q
The overall minimum cost of €24 980 occurs at Q* = 1000

10.6 Single-Period Inventory Model with Probabilistic Demand

The inventory models discussed so far were based on the assumption that the
demand rate is constant and deterministic throughout the year. We developed
minimum cost order quantity and reorder point policies based on this assumption.

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