Grainer, a wholesale distributor of candy, leases space in a warehouse and is charged according to the average number of cases stored. Management is concerned about the high ordering costs incurred last year. The company employs temporary personnel to process purchase orders and invoices upon receipt of the candy. Managers, supervisors, and shipping clerks are full- time employees. The company placed 200 orders last year. Data for the high- activity month (30 orders) and the low-activity month (10 orders) for the purchasing and warehouse operations are

The company purchased 160,000 cases of candy last year. Information on the high- storage month (4,000 cases) and the low- storage month (2,500 cases) follows:

Last year it took three days to receive candy from suppliers after the order was placed. The company does business 320 days per year. It wants to maintain a safety stock of 1,000 cases of candy.

Required

A. Determine the economic order quantity.

B. Determine the reorder point.

C. Explain why ordering costs were too high last year.

D. Show proof that the economic order quantity results in the lowest possible carrying plus ordering costs. (Ignore safety stock in your calculations.)

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High-Activity Month (30) Low-Activity Month (10) Purchasing Department Manager Clerks Supplies $1,600 300 $1,600 100 60 20 Warehousing Department Supervisor Receiving clerks Shipping clerks 1,550 360 2,800 $8,670 1,550 120 2,800 $6,190 Total High-Inventory MonthLow-Inventory Month (4,000) (2500) Warehouse charges: Rent Property taxes Insurance $6,000 2,000 4,000 $12000 $3,750 1,250 2,500 $7,500 Total