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Full fixed cost recovery lot sizing with quantity discounts
Author(s) -
Britney R.R.,
Kuzdrall P.J.,
Fartuch N.
Publication year - 1983
Publication title -
journal of operations management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.649
H-Index - 191
eISSN - 1873-1317
pISSN - 0272-6963
DOI - 10.1016/0272-6963(83)90017-7
Subject(s) - schedule , sizing , fixed cost , pricing schedule , point (geometry) , total cost , computer science , operations research , simple (philosophy) , economics , microeconomics , limit price , price level , mathematics , keynesian economics , visual arts , operating system , art , philosophy , geometry , epistemology
Abstract Purchasers must often make lot sizing decisions when facing price schedules of price‐quantity discounts. It is important to determine the supplier's pricing philosophy when establishing a solution procedure. One approach is to evaluate total costs at all of the appropriate break points. This offers limited information: a lot size and a set of total costs. This is especially true in the case of full fixed cost recovery pricing. In actual practice price schedules can be extremely lengthy: indeed, it may be in the supplier's best interests to offer comprehensive discount schedules. This situation complicates the purchaser's decision making process. An efficient alternative, which solves the price‐quantity discount problem when the supplier insists on a full fixed cost recovery schedule, is presented. Computations are reduced to a few simple steps; the result is a least total cost lot size for a simple linear package price model given parameters obtained by an appropriate analysis of the supplier's price‐quantity discount schedule. A starting point is determined and the choice of the lot size is made using a simple criterion. Rapid convergence is assured, given a reasonably well‐behaved schedule.