Graphical representation of the inventory process

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The Andy Dandy Candy Company has asked you to recommend an EOQ quantity for their jelly bean product. The only costs involved are the cost of ordering and the cost of holding inventory, which is equal to the average amount of capital times the interest rate. Backorders are not allowed and there are no other costs. When a shipment arrives, the company sells the jelly beans at a certain price until half of the shipment is sold at which time the company raises its price. Assume that the prices charged at both parts of a cycle are known, which implies that there are two known, continuous, constant rates of demand D1 and D2, D1 being the rate at the first part of a cycle with D1 >D2. As a consultant, you are requested to present the following: a) A graphical representation of the inventory process. (What is the fraction of time spent at rate D1?) b) A total cost equation, defining the terms c) Obtain the optimal order quantity. d) Find the solution for k=$20, vr=$2, D1=30, D2=15 e) Compare the above solution with the case when a single price is charged throughout the whole cycle with a demand rate of D1=D2=30. Compare the profits in both cases.

Reference no: EM131279598

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