Question

Betty bakes and sells bagels all year round. Betty plans and manages inventories of paper take-out bags with her logo printed on them. Daily demand for take-out bags is normally distributed with a mean of 90 bags and a standard deviation of 30 bags. Betty’s printer charges her $10 per order for print setup independent of order size. Bags are printed at 5 cents ($0.05) each bag. It takes 4 days for an order to be printed and delivered. Betty has a storage room big enough to hold all reasonable quantities of bags. The holding cost is estimated to be 25% per year. Assume 360 days per year. (Use the H= i × C formula to compute the annual holding cost).

Please solve A,B, and C. Please show work.

A. What is the optimal order quantity per order for Betty?

B. How many times per year does Betty need to order?

C. How many days will elapse between two consecutive orders?

Answer 1

Economic Order Quantity is an inventory management technique where the managers calculated how many units of an order they should make to the vendor so that we enjoy the lowest possible cost.