Quantity Discounts
The UWM Bookstore orders coffee mugs out of a catalog from a supplier. The demand for these coffee mugs is 1,849 per year. There is a $45 charge for placing an order and the cost per coffee mug to hold it in inventory for the year is $2.50.
a- What is the economic order quantity?
For part b) assume the cost of the coffee mugs are based on the quantity ordered at one time. If less than 200 are ordered, the unit price is $7.25, if 200-499 are ordered the unit price is $7.00, if 500 to 999 are ordered, the unit price is $6.95, and if 1000 or more are ordered the unit price is $6.75.
b- What order quantity will result in the lowest total annual cost to the UWM Bookstore? Be sure to show your work for full credit.
Single-Period Inventory System
The restaurant you are working at makes one massive batch of ravioli each day. If you run out before the end of the day, the last few customers are less than satisfied, but if you make too much, it can be sold to the local hog farmer for feed. Every serving costs $0.93 to make and can be sold for $8.00 to customers. You have to pay $0.10 per serving to transport the extra servings to the hog farmer, but the hog farmer will pay you $0.48 per serving. The average daily demand is 82 servings with a standard deviation of 26 servings.
a- What is the target service level?
b- How many servings of ravioli should your restaurant make each day to meet this service level?