Maria's Bakery has just estimated the forecast for annual flour consumption as 500,000 pounds. Bakery buys flour from a local grocery in 25-pound bags, where each bag costs $40. The grocery charges $100 for each shipment. Maria's Bakery uses a 10% opportunity cost of capital.
a) Determine the economic order quantity.
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 in a year.
e) Maria on her way to work saw an advertisement from the supermarket saying "Every day low prices: $30 for 25 lbs. flour bag..." and "...we charge $120 per shipment". Should Maria follow up the ad and order from the supermarket instead of the local grocery?