Question

A beer distributor finds that it sells on average 100 cases a week of regular 12-oz. Budweiser. For this problem assume that demand occurs at a constant rate over a 50-week year. The distributor currently purchases beer every two weeks at a cost of $8 per case. The inventory-related holding cost (capital, insurance, etc.) for the distributor equals 25 percent of the dollar value of inventory per year. Each order placed with the supplier costs the distributor $10. This cost includes labor, forms, postage, and so forth.
a. Assume the distributor can choose any order quantity it wishes. What order quantity minimizes the distributor's total inventory-related costs (holding and ordering)? For the next three parts, assume the distributor selects the order quantity specified in part (a).
b. What are the distributor's inventory turns per year?
c. What is the inventory-related cost per case of beer sold?
d. Assume the brewer is willing to give a 5 percent quantity discount if the distributor orders 600 cases or more at a time. If the distributor is interested in minimizing its total cost (i.e., purchase and inventory-related costs), should the distributor begin ordering 600 or more cases at a time?


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  • CreatedMarch 31, 2015
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