QUESTION 4 20 MARKS

Lunas is a convenient store that purchases water from a bottling company in Ocho Rios. Lunas is opened every day except Easter Monday and Christmas Day. The demand for water is 200 bottles per day. Each bottle of water cost $100. The annual holding cost rate is 14%. Lunas ordering cost is $3,500 . The lead time for the delivery is 4 days on each order.

a) How many bottles of water do you recommend that Lunas order every time it places an order. 4 Marks

b) Determine the estimated holding cost; and ordering cost 4 Marks

c) How much time will elapse between each order 4 Marks

d) How many orders will be placed each year 3 Marks

e) Determine the re-order point 3 Marks

f) Advise Lunas on what will be their Total Annual Cost 2 Marks