1. Beer Distribution (EOQ) (30 points)

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 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.

1. What is the basic trade-off?

2. Assume the distributor can choose any order quantity it wishes. What order quantity minimizes the distributors total inventory-related costs (holding and ordering)?

3. How many orders does the distributor place every year?

[Note that the holding cost rate is 25% per year, you need to convert it to % per week.]