Mr. Dan Brown, owner of the New England Seafood Store, has the only seafood store in town that carries Maine lobsters. The demand for lobsters has been sufficiently high to warrant continued air transportation of lobsters from Boston. However, Mr. Brown cannot order too many lobsters because of the ever-increasing holding costs and limited salt water space. Mr. Brown asked his son-in-law, Stuart Little, a recent graduate of a business college, to give him some help in determining the best inventory policy for lobsters.
After looking over the past records, Stuart identified the following: D = 4000 lobsters per year Ch = $0.50 per lobster per year Co = $40 per order (including air freight) LT = 3 days The store operates 300 days per year. Quantitatively analyze the situation and answer the following multiple choice questions. First, Determine the optimal order quantity , Q*, for lobsters.
Determine the optimal order quantity Q* for Lobsters:
Determine the Demand Rate Per Day:
Determine the optimal reorder point:
Compute the total variable inventory cost with the optimal Q* and R*: