Chapter 4 Models for Known Demand. 1. Price discounts from suppliers. Variable costs Valid total cost curve Finding the lowest valid cost Rising delivery cost Summary. Variable costs.
We can express the holding cost as a proportion, I, of the unit cost, and for each unit cost UCi, the minimum point of the cost curve comes with Qoi.
We also know that:
Stock from production
A = (P – T) × PT
The total production during the period is :
Q = P × PT or PT = Q/P
The models described so far have assumed that no shortages are allowed and that all demand must be met. This is a reasonable view when shortages are very expensive. There are, however, circumstances where planned shortages are beneficial. An obvious example comes when the cost of keeping an item in stock is higher than the profit from selling it.
• holding cost component: an average stock of (Q — S)/2 held for a time Ti
= HC x (Q - S) x Ti
= (SC x S x T2)/2
e.g. computer store, which is going to sell 50 units this week, 45 units next week, 60 units the following week, and so on.