Reference no: EM132863390

Question - SaskAlloy purchases a certain type of catalyst for its forging operations. Demand for this catalyst is estimated to be 5000 kilogram per year, and the cost of purchasing each kilogram of the product is $13.5.

SaskAlloy uses a computerized inventory management system; so, the overhead cost of placing an order is low, and estimated to be $150. However, due to space limitations, SaskAlloy has calculated the rate of holdingone kilogram of the product to be 30% per year.

Due to the importance of the catalyst to the healthy operation of SaskAlloy's production line, cost of shortage is deemed to be quite high and is estimated to be $500 per kilogram. Calculate:

Duration of having positive inventory in each period.

SaskAlloy has decided to eliminate the chance of shortage of the catalyst due to the high importance of the product to the quality of the company's final product. Help Mark, the inventory manager, find the correct value of the cost of shortage given the new circumstances.

The supplier has notified SaskAlloy that, due to changes in packaging, the catalyst can be purchased in tubs of 50 kilograms. If shortage is not allowed, find the best amount of product to be purchased in each cycle.