Question: The Brown Sugar Corporation sells baking supplies to Foodies over the Internet. The company's largest selling product is Louisiana Hot Brown Sugar. The company wants you to determine the optimal order size of Louisiana Hot given an annual demand of 10,4000 pounds, a carrying (or holding or set-up) cost of $2 per pound and ordering cost of $200 per order. The cost to accumulate each back-order is $5. The Vice President of Operations, Keith Richards, has asked you to determine if a back-order policy is feasible.
To solve we need to determine the following:
1. How much should we order (Qbo)?
2. How many units are on back-order (S)?
3. What is the maximum inventory level (Qmax)?