Two orders and total annual relevant inventory cost

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Reference no: EM132284912

Seattle Amazon grocery store needs your help in determining the optimal ordering policy for Nutella jars. The demand for Nutella is 20 jars per day. The store pays a unit cost of $3 per jar and a fixed ordering cost of $150 per order. The annual unit holding cost of inventory is estimated to be 25% of the unit cost. The store operates 250 days a year.

a. Determine the Economic Order Quantity (EOQ). Compute the time between two orders and the total annual relevant inventory cost (i.e., sum of holding and ordering costs) for Nutella jars in the EOQ model.

b. Compute the reorder point assuming that the order lead time is 4 workdays.

c. Suppose that supplier requires orders to be placed in multiples of 100 units. What order quantity would you now suggest to the store to meet the supplier’s mandate while minimizing total annual costs? What is the increase in the total annual relevant inventory cost due to this requirement compared to your answer in part (a)?

Reference no: EM132284912

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