A large bakery opens 365 days per year and buys flour in 25-pound bags. The bakery uses an average of 48,600 bags a year. Preparing an order and receiving a shipment of flour involves a cost of $100 per order. Monthly carrying costs are $1 per bag.
A) Determine the economic order quantity.
Suppose that the economic order quantity that you calculate in Part 1 is used to order by the bakery, answer the following questions:
B) What is the average number of bags on hand?
C) How many orders per year will there be?
D) Compute the total cost of ordering and carrying flour.
E) The bakery’s flour delivery lead time is 3 days. What is their re-order point?
Suppose due to warehouse capacity issues, the bakery can only hold a maximum of 500 bags of flour at any given time:
F) How much more do they have to pay for inventory costs compared to when they can order the EOQ?