Question

1. A supermarket stocks Hostess Cakes. The demand for these cakes is 6,000 boxes per year...

1. A supermarket stocks Hostess Cakes. The demand for these cakes is 6,000 boxes per year (365 days). It costs the store $100 per order, and $0.75 per box per year to keep the cakes in stock. Lead time is 4 days. Determine the following: a) The EOQ. b) The average inventory c) The optimal number of orders per year. d) The annual cost of ordering and holding inventory.

Business   Operations-Management   
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Answer #1

Annual demand (D) = 6000

Ordering cost (O) = $100

Holding cost (H) = $0.75 per box per year

Lead time = 4 days

Ans a)

Economic order quantity =  

=

= 1265 boxes per order

Ans b)

Average inventory = 0.5 * 1265

= 632.5 boxes

Ans c)

Optimal number of orders per year =

=

= 4.74 i.e 5 orders per year

Ans d)

Annual ordering cost =  

=

= $474.30

Annual holding cost =

=

= $474.37

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