Millennium Liquors is a wholesaler of sparkling wines. Their most popular product is the French Bete Noise 1989. Weekly demand is for 50 cases on average, with standard deviation 10. Assume demand occurs over 50 weeks per year, with 6 working days per week. The wine is shipped directly from Freance, includes other inventory related costs. Below are relevant data on the costs of shipping and handling. These costs include the usual ordering and handling costs, plus the cost of refrigeration, which includes a fixed cost component (mainly depreciaiton of the colling equipment and a variable componenet that depends on the FBN ' 89 cases in inventory)
Cost per case: $120
Cost of labor to place and process each order with the French supplier: $10
Shipping cost for any size : $290
Cost of labor to place cases into warehouse: $2/case
Cost of labor to pick case when sold : $2
Fixed cost for refrigeration: $75/week
Variable cost for refrgeration: $3/case/week
a. Briefly explain why the correct holding cost rate to carry one case of wine in inventory for one week is 3.48 or 3.49/case,week. What is the correct value for the fixed order cost, A
B. Calculate a good order quantity Q for FBN 89 and the corresponding average cycle stock
C. Compute a good reorder point r if a newsvendor in stock service level (critical ratio) of 95% is considered appropriate and a normal demand model is used. Calculate the safety stock implied by your reorder point. Estimate the weekly inventory carrying cost corresponding to your Q and r values
d. Suppose the inventory is reviewed at a time when there is one outstanding order for Q=EOQ of FBN 89 cases) placed with the supplier but not yet delivered. The inventory on hand is 65 caes. Is it time to place a new order with the supplier, yes or no.