The Pawtucket Brewery uses approximately 35000 bottles a month for its signature product, the Pawtucket Patriot Ale. Due to storage limitations, a lot size of 5000 bottleshas been used. The monthly holding costs are 18cents a bottle and the reordering cost is $50 per order. The company operates on an average of 20 days a month.
a. What penalty is the company incurring by its present order size?
b. The manager would prefer ordering 10 times each month, but would have to justify achange in the order size. One possibility is to simplify order processing to reduce the ordering cost. What ordering cost would enable the manager to justify ordering everyother day (i.e. 10 times a month)?