A canning company uses approximately 40,000 glass jars per month for its products. Because of storage limitations, a lot size of 10,000 jars has been used. The monthly holding cost of one jar is $1.20, and ordering cost is $300 per order. The company operates an average of 20 days per month.
Questions:
A) What penalty is the company incurring by using its present order size rather than the EOQ model?
B) The manager would prefer ordering every other day, but would have to justify any change in order size. One possibility is to simplify order processing to reduce the order cost. What ordering cost would enable the manager to justify ordering every two days?
C) Suppose that after investigating ordering cost, the manager is able to reduce it to 275. How else could the manager justify using an order size that is consistent with ordering every two days?