Yummy Sweets is a commercial baker that provides baked goods such as cookies and muffins to a number of coffee houses and snack bars around the Dallas area. Flour is an ingredient to many of their products so they use it at a fairly constant rate. They currently follow a policy of ordering 16,000 pounds every four weeks. (That is equivalent to 20 days since Yummy Sweets operates 5 days per week and roughly 250 days per year.)

Their supplier sells flour in 50 pound bags at a price of $20 per bag. Yummy Sweets' management estimates that it cost $64 every time that they place an order for flour. Their cost of capital is 25% per year. la)
What are Yummy Sweets' annual inventory related costs (both holding and ordering) under their current policy? Can you suggest a better policy?

Yummy Sweets has signed on a number of new accounts. Management estimates that they will need twice as much flour per week. The purchasing manager likes the simplicity of ordering once every four weeks and has suggested sticking to that schedule and just ordering a larger quantity each time. The head chef would prefer to order more frequently. She has suggested keeping the order quantity constant at 16,000 pounds and ordering once every two weeks.

Ib) What are annual total inventory costs and inventory costs per unit sold under the purchasing manager's plan?

1c) What are annual total inventory costs and inventory costs per unit sold under the head chef's? 1d) What is the optimal order quantity? What are the resulting annual total inventory costs?

 

 

Answer rating: 100% (QA)

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