## Discount Acceptable to Equate Total Cost with EOQ Level

A supplier may offer a discount if you order in a quantity other than EOQ. You must decide the maximum discount % that makes the deal at least as good as ordering at EOQ.

### Step 1 — Discount Amount

$$\text{Discount Amount} = \text{Total Cost at Given Level} - \text{Total Cost at EOQ Level}$$

This is the extra cost the firm incurs by NOT ordering at EOQ. The supplier must compensate at least this much through a price reduction.

### Step 2 — Discount %

$$\text{Discount \%} = \frac{\text{Discount Amount}}{\text{Qty Purchased} \times \text{Purchase Price}} \times 100$$

### Interpretation

Any discount equal to or greater than this % makes the non-EOQ order acceptable; anything lower means stick with EOQ.

Worked example

### Example 1

Example: TC at given order size = ₹52,000; TC at EOQ = ₹50,000. Qty purchased = 10,000 units at ₹20 each.

Discount Amount = 52,000 − 50,000 = ₹2,000

Discount % = 2,000 / (10,000 × 20) × 100 = 1%

So the firm should accept the offer only if the supplier gives at least 1% discount.

⚠️ Common exam mistakes

Comparing only ordering cost or only carrying cost — must compare TOTAL cost (ordering + carrying + purchase price where relevant).
Using EOQ quantity in the denominator instead of the actual quantity purchased.
Treating the discount % as a profit instead of a break-even compensation.

Reference:

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Acceptable Discount Calculation (to match EOQ Total Cost)

Worked example

⚠️ Common exam mistakes