Find the optimal order quantity re-order point and annual

Assignment Help Operation Management

Reference no: EM13388661

Clark Equipment distributes the Clanton Model 406 bread slicer used in bakeries. The slicers cost $250 each, and Clark sells them to net $310 after marketing and related expenses. The company estimates that the annual demand for this product is 450 units. The policy at Clark has been never to allow stockouts intentionally, and the company has carried a safety stock of 30 units in order to protect against such occurrences. Because of mounting fiscal pressure, however, Clark is considering eliminating the safety stock for the bread slicers and adopting a policy that allows for stockouts.

Clark estimates that it will suffer a customer goodwill loss of $25 per week for each week a customer must wait for a back ordered bread slicer. Clark also believes that there is an administrative cost of $30 in handling a backorder and that adopting such a policy would result in a 4% decrease in annual sales of the bread slicer. Clark uses a 15% annual inventory holding cost rate, and the cost of ordering slicers from Clanton is $180. Delivery lead time is 10 working days, and Clark is open 250 days a year.

a. Determine the optimal order quantity, re-order point, and annual profit under the current policy of not intentionally allowing backorders.

b. Determine the optimal order quantity, reorder point, and annual profit if Clark intentionally allows for backorders.

c. What is your recommendation to management as to whether Clark should intentionally allow for backorders? Justify this recommendation.

Reference no: EM13388661

Questions Cloud

As a manager what factors do you consider when finding the : as a manager what factors do you consider when determining the most effective way to communicate a message to you

The actual market prices premiums for these two calls : the two calls you are to value are1. the august 2014 50 whole foods call option 50 is the strike price2. the jan 2015

Compute standard deviation why is there variation in number : statistics students were asked to fill a one-cup measure with raisin bran then tap the cup lightly on the counter three

Describe capital budgeting and time value of money tvm : the it department of your company has begun to appreciate that its projects do not exist in a business vacuum. that is

Find the optimal order quantity re-order point and annual : clark equipment distributes the clanton model 406 bread slicer used in bakeries. the slicers cost 250 each and clark

Bender guitar corporation a manufacturer of custom electric : bender guitar corporation a manufacturer of custom electric guitars is contemplating a 1000000 investment in a new

Explain ethical issues or concerns about mcos providing : you are a new physician setting up your own practice in a new town. you are researching the different mcos offered in

What are the trends or similarities between countries with : the corruption perceptions index cpi is a comparative assessment of integrity performance for a variety of

How this investment give rise to subsequent opportunistic : some products require special custom-made trucks to transport by road. if a trucking company contracts with a

User Account

All Pages