Problem
Dominic's supermarket chain sells Nut Flakes, a popular cereal manufactured by the Tastee cereal company. Demand for Nut Flakes is 720 boxes per week. Dominic's has a holding cost of 30 percent and incurs a fixed trucking cost of $800 for each replenishment order it places with Tastee. Assume the company operates 50 weeks a year.
1. Given that Tastee normally charges $3.00 per box of Nut Flakes, how much should Dominic's supermarket chain order in each lot?
2. Tastee runs a trade promotion, lowering the price of Nut Flakes to $2.50 for a month. How much should Dominic's supermarket chain order, given this short-term price reduction? What is the forward buy?