TOTAL SETUP LOT SIZING WITH QUANTITY DISCOUNTS*

Often, order quantity decisions are made by purchasers facing a price schedule of quantity discounts. Traditional solution procedures have consisted of the evaluation of total cost at numerous price-break points in search of the lowest total cost. This approach is tedious and not particularly informative, especially when one is faced with lengthy schedules. This paper presents a total setup lot-sizing model that reduces the computations required to find the least-total-cost quantity, given parameters from a supplier's price schedule. The parameters are first obtained by simple regression (graphical or computer) and in themselves can provide valuable insight for the purchaser's decision making. A total setup lot-sizing model is next developed to define a “critical interval” that contains the solution. The model and algorithm are tested under a variety of conditions. Their application offers the decision maker a convenient alternative to determine the best quantity to order from a tendered price schedule.     

JOINT PRODUCT COST ALLOCATION IN THE CONTEXT OF COST-PLUS PRICING DETERMINATIONS WITH NON-UNIFORM MARKUPS

Companies that use cost-based pricing sometimes manufacture products that involve joint cost allocation. A problem with this is that, while product prices are a function of the full cost, joint cost allocation methods using net realizable values depend on the product prices. This paper demonstrates that when all costs and production quantities are known or can be budgeted, it is possible to simultaneously determine unique product prices (having non-uniform markup rates) and cost allocations using the net realizable value method.     

ON THE COST OF NEW ISSUES OF COMMON STOCK: AN AMENDMENT TO THE CONSTANT GROWTH MODEL

Expansion decisions by corporate managements are importantly influenced by their perceptions of the firm's cost of capital and especially the cost of common equity. Their decision making is then influenced by the common perception that new issues of common stock are more costly than retained earnings because of the flotation costs inherent in new issues. Thus a rate of expansion that requires new issues is downgraded in decision making. In this paper the authors show that in actuality new issues of common equity may be less costly than retained earnings. Thus different decision-making implications are clearly involved.