Honeywell Bakery buys teff flour for use in its gluten-free baked goods production at $4 per lb with an order cost of $15 and a lead time of 4 weeks. The flour is needed throughout the entire 52-week year, with an annual demand of 1,250 lbs. Honeywell's holding cost for teff flour is 90% of the item cost and they keep a safety stock of 55 lbs. (Note: 1 lb = 16 oz)
a) Compute the optimal order quantity.
a. Square root(2x1250x15/4x.9)=102 lb.
b) Compute the optimal order quantity if the price of teff flour changes to $10 per 60 oz. Is this order quantity different from the one in a? If so, explain the difference.
a. Square root (2x1250x15/2+.9)=124 lb. yes, the difference is that in increases by 22 lb.
c) What is the reorder point for the teff flour?
a.