Question

Hartley Incorporated buys plastic resin by the ton, and then packages and distributes it in smaller amounts to industrial users. The resin typically costs $45per ton, and Hartley uses 75,000 tons each year. Placing an order for more resin costs $506 in allocated labor cost for purchasing personnel. Holding costs for the resin are estimated at 1% of the product value each month. Hartely operates 365 days a year.

a. How much resin should Hartley order each time? (Round your answer to 2 decimal places.)

b. What will be the average inventory and annual holding cost? (Round your intermediate and final answer to 2 decimal places.)

c. Suppose that instead of have each replenishment order delivered all in one shipment, Hartley asks its resin supplier to deliver each order in equally sized shipments, one shipment per day, each shipment big enough to cover 2 days worth of demand. How will this affect Hartley's order quantity, average inventory, and annual holding costs? Hint: realize in this second scenario that Hartley’s inventory level will never reach Q. (Round your intermediate and final answer to 2 decimal places.)

Answer 1