Reference no: EM13252253

1) A beer distributor finds that it sells 100 cases a week of regular 12-oz. Budweiser (assume 50 weeks per year). The distributor currently purchases beers at a cost of $8 per case from a supplier. The annual holding cost (capital, insurance, etc.) for the distributor equals 25 percent of the dollar value of the inventory (i.e., the purchasing cost). Each order placed with the supplier incurs a fixed cost $10 for the distributor and is delivered immediately. [For part (a-d), use EOQ model.] a) Assume the distributor can choose any order quantity it wishes. What order quantity minimizes the distributor's total costs? b) What is the order cycle time (the time between when two successive orders are placed)? c) How many orders does the distributor place every year? d) What is the average total cost incurred by the distributed per case of beers sold (the sum of the purchasing cost per case, the allocated fixed cost per case, and the average holding cost per case)? (2) Now, assume the supplier is willing to give a 5 percent discount (i.e., $8*95% per case) if the distributor orders 600 cases or more at a time. Note that the holding cost of the distributor will change if the discount is obtained, since the holding cost is a percentage of the purchasing cost. e) If the distributor is interested in minimizing its total cost (i.e., the sum of the purchasing, holding and fixed costs), how many cases should the distributor order at a time, to still order by the EOQ you obtained in a), or to order by 600 cases per order, or by something else? [Hint: For part e), you need to take at least 600 cases per order if you want to get the discount (i.e., 600 cases per order is the threshold. You can certainly order more per time if you wish. The discount is still 5% even if you order more than 600 cases per time.)]