You are in charge of managing the inventory of cookie boxes for Kristen s cookie - making
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Question:
You are in charge of managing the inventory of cookie boxes for Kristens cookiemaking business.
The flow rate of the process is constant and equal to orders per hour. Assume the process goes
on forever without interruption and that each order uses exactly one cookie box. You purchase
the cookie boxes from a supplier who delivers them to you exactly two days after you have placed
an order. He charges cents per box plus delivery fee of $no matter how many boxes were
ordered The storage costs amount to cents a box per day. The cost of electricity for Kristens
dorm room is a fixed $ per month irrespective of actual consumption Kristen gets a
interest rate on her savings account annually. She plans to invest any cash the cookie business
generates into an exciting business opportunity promising a return on investment of per week.
Assume hours a day and days a week.
a List the values for the relevant parameters for the Economic Order Quantity EOQ model,
namely, the unit purchasing cost C the demand rate D the cost of capital i the
inventory holding cost H the setup cost S and the lead time L
b Kristen tells you that you should order once a week, that you should order exactly the
quantity needed to satisfy demand between two orders, and that you should place orders at
the right time so the delivery arrives just as you run out of cookie boxes. What is your total
average daily cost setup inventory holding purchasing
Note: only include the costs which are relevant to the EOQ model.
c How often should you place an order in order to minimize total cost per day? What will be
your total cost per day in that case?
d Suppose your supplier refuses to deliver orders for less than boxes. How often should
you place an order then? Explain why. By how much does this constraint increase your
total cost per day compared to the minimum possible value?
Related Book For
Cost management a strategic approach
ISBN: 978-0073526942
5th edition
Authors: Edward J. Blocher, David E. Stout, Gary Cokins
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