The Spruce Creek Vegetable Farm produces organically grown greenhouse tomatoes that are sold to area grocery stores. The annual demand for Spruce Creek’s tomatoes is 270,000 pounds. The farm is able to produce 305,000 pounds annually. The cost to transport the tomatoes from the farm to the stores is $620 per load. The annual carrying cost is $0.12 per pound.
a. Compute the optimal order size, the maximum inventory level, and the total minimum cost.
b. If Spruce Creek can increase production capacity to 360,000 tomatoes per year, will it reduce total inventory cost?