Computing cost savings and optimal order quantity yield

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Reference no: EM1338274

1. Garden Variety Flower Shop uses 750 clay pots a month. The pots are purchased at $2 each. The store's accountant estimates the annual carrying cost to be 30 percent of the purchase price per unit, and ordering costs are $20 per order. The manager has been using an order size of 1,500 flower pots.

A. What additional annual costs is the shop incurring by staying with this order size?

B. Other than cost savings, what benefit would using the optimal order quantity yield?

2. Given this information:

Lead time demand = 600

Standard deviation of lead time demand = 52 lbs (assume normality)

Acceptable stockout risk during leadtime = 4 percent

A. What amount of safety stock is appropriate?

B. When should this item be reordered?

C. What risk of stockout would result from a decision not to have any safety stock?

Reference no: EM1338274

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