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Problem: The Waveland Cookie Company was looking for ways to improve its profits. It was felt that a good place to look for cost savings was to improve its inventory management. The first place they looked was at the procurement of chocolate for their chocolate chip cookies.
They determined that they used 6503 pallets each year at a constant rate throughout the year. It costs WCC $40 each time it places an order. A pallet of chocolate costs $750. Because of the special handling required the cost of holding its chocolate inventory is 15 percent of its average value. It normally takes 3 days to receive an order once it is placed.
A) How many pallets should they order each time they order to minimize the total cost of inventory?
B) How many items should be in inventory when they reorder so they do not run out? Assume 360 days per year.
C) How many times per year will they have to place an order?
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