Question: Toronto's Roma Pizzeria sells a variety of pizzas. The largest inventory item held by Roma is cheese. The owner has approached you for advice in connection with the size of orders that should be placed when ordering cheese. You have ascertained the following:
- Cheese is ordered in blocks at $20 per block. Roma currently places an order with its cheese supplier every two weeks and the average order size is 500 blocks.
- Roma has a policy of timing its cheese reordering so that its inventory of cheese has declined to 40 blocks when the new shipment arrives.
- Money not invested in inventory could be invested in a bank account to earn Roma 5% per annum.
- The cheese is shipped in refrigerated transport and the cost of ordering, shipping and receiving a shipment is $30.