Question: A local supermarket sells a popular brand of shampoo at a fairly steady rate of 380 bottles per month. The cost of each bottle to the supermarket is 45 cents, and the cost of placing an order has been estimated at $8.50. Assume that holding costs are based on a 25 percent annual interest rate. Stock-outs of the shampoo are not allowed.
a. Determine the optimal lot size the supermarket should order and the time between placements of orders for this product.
b. If the procurement lead time is two months, find the reorder point based on the onhand inventory.
c. If the item sells for 99 cents, what is the annual profit (exclusive of overhead and labor costs) from this item?