Pet store sells very popular blend of cat food

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Reference no: EM132296111

Pet Store (PS) sells a very popular blend of cat food at $20 per pack. Average weekly demand of this cat food at PS is 500 packs per week. The owner of the store, John Snow, orders the packs of cat food from the Ice & Fire Co. (I&F) at $15 per pack and have to pay a flat fee of $100 per order for shipping and handling. PS uses a fixed order size as their inventory policy. Assume that the opportunity cost of capital and all other inventory cost is 15 percent annually and that there are 50 weeks in a year.

(a) How many packs of cat food should PS order at a time?

(b) What is the average number of replenishment cycles (inventory cycles) per year?

(d) Given your answer in part (a), how many months of cat food packs does PS have on average (1 month equals 4 weeks)?

(e) On average, how many dollars per year does PS spend to hold cat food?

(f) What is PS’s weekly inventory turns when John Snow orders the amount you found in part (a) above? (Hint: Weekly Inventory Turns = 1 / Average Inventory in Weeks)

(g) Determine the reorder level (on-hand inventory at time of reorder) if the replenishment lead time is three weeks.

(h) Assume I&F is willing to give a 1 percent quantity discount if PS orders more than 5,000 or more packs at a time. If PS is interested in minimizing its total cost (i.e., purchase and inventory- related costs), should PS begin ordering 5,000 or more packs at a time? (Hint: Note that the holding cost per item also decreases by 1% if PS orders more than 5,000 packs. Compare the total annual cost when PS goes after the discount to the annual cost with Q<5,000)

Reference no: EM132296111

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