A beer distributor finds that it sells 100 cases a week of regular 12-oz. Budweiser (assume 50 weeks per year). The distributor currently purchases beer at a cost of $8 per case from a supplier. The annual holding cost (capital, insurance, etc.) for the distributor equals 25 percent of the dollar value of the inventory (i.e., the purchasing cost). Each order placed with the supplier incurs a fixed cost of $10 for the distributor and is delivered immediately.
(a) Assume the distributor can choose any order quantity it wishes. What order quantity minimizes the distributor’s total costs?
(b) What is the order cycle time (the time between two successive orders)?
(c) How many orders does the distributor place every year?
(d) What is the total cost per week (the sum of the purchasing cost per week, the fixed cost per week, and the average holding cost per week)?
Now, assume that according to the supplier’s policy, the beer distributor has to order at least 300 cases per order.
(e) What order quantity minimizes the distributor’s total cost?
(f) What is the total cost per week?