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The demand for spring water at the SLC Costco is 600 liters per week. The setup cost for placing an order to replenish inventory is $25. The order is delivered by the supplier which charges Costco $0.10/liter for the cost of transportation from the Rocky Mountains to SLC. This transportation cost increases the cost of water to $1.25/liter. The water loses its freshness while stored at the SLC Costco. To account for this, the Costco charges an annual holding cost of $2.6/liter. Assume that there are 52 weeks a year.
Q11) Determine Costco’s Economic Order Quantity (in liters) and How often should Costco order for water (in weeks) when Costco orders its economic order quantity computed in Q11 each time it places an order?
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An analysis of the holding costs, including the appropriate annual holding cost rate.
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