One of the products stocked by a Sam's Club store is Sams Cola, which is sold in cases. The demand level for Sams Cola is highly seasonal:
• During the slow season, the demand rate is approximately 650 cases a month, which is the same as a yearly demand rate of 650*12 = 7,800 cases.
• During the busy season, the demand rate is approximately 1,300 cases a month, or 15,600 cases a year.
• The cost to place an order is $5, and the yearly holding cost for a case of Sams Cola is $12.
a. According to the EOQ formula, how many cases of Sams Cola should be ordered at a time during the slow season? How many cases of Sams Cola should be ordered during the busy season?
b. Suppose Sam's Club decides to use the same order quantity, Q = 150, throughout the year. Calculate total holding and ordering costs for the year. Do not consider safety stock in your calculations. (Annual demand can be calculated as an average of the slow and busy rates given above.)