Using a continuous review inventory model

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The X Baking Co. orders flour using a continuous review inventory model. X's ordering cost is $45, its inventory carrying percentage is 20% (i.e. i=0.2), the flour costs 45 cents per pound, the annual demand for flour is 100,000 pounds. Consequently, X's economic order quantity is10,000 pounds. Suppose X is about to place an order and learns that the supplier, Y Flour Company, has an excess inventory that it want to get rid of. To entice X to order more, the supplier offers X the following options:

(1) A ONE-TIME DEAL of 50,000 pounds at 43 cents per pound now and 50,000 pounds at 44 cents 6 months later.

(2) A ONE-TIME DEAL of 75,000 pounds at 43 cents per pound now and 25,000 pounds at 44 cents 9 months later.

Assuming demand occurs at a known constant rate, what should X do? Justify your answer.

Reference no: EM131013887

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