Supplier Quantity Discount Decision Calculator

How the supplier quantity discount decision calculator works

Both orders must cover the same entered units used. Purchase cash is unit price × order quantity. Excess units are order quantity less use. Ending stock is still an asset in the model: its residual value equals excess units × unit price × one minus the entered economic haircut.

Period economic cost is purchase cash plus storage and simple funding cost less ending-stock residual value. Storage is the entered whole-period amount per excess unit. Funding applies to the entire purchase for the entered months. Each component rounds separately to cents, and the comparison uses those rounded economic costs. Treating all unsold purchase cash as consumed expense would count inventory incorrectly.

Use, holding period and haircut are assumptions rather than a demand forecast, inventory impairment policy or optimized order quantity. Cash tied up is shown separately from economic cost. Delivery, taxes, liquidity constraints, supplier returns and price-tier qualification are excluded unless incorporated consistently in the entered prices and costs.

Worked example

A regular order of 100 at 10 costs 1,000 with no excess. A discount order of 150 at 9 costs 1,350 and leaves 50 excess. At a 20% haircut the excess stock is valued at 360; storage at 1 adds 50 and six months at 12% adds 81 financing cost. Economic cost is 1,121 versus regular cost 1,060, so the discount order is 61 higher. At price 8 it costs 1,002, saving 58.

Sources and assumptions

The source material explains the underlying calculation or pricing structure. Entered prices, costs, schedules and scenario choices are your assumptions; this tool does not obtain supplier quotes or predict actual results.

• Shopify: inventory quantity and value reports
• CFI: discounted cash flow formula and terminal assumptions