Cardinal Cola Corp. sells cases of Cardinal Cola at a fairly steady rate of 12,000 cases per month. It costs Cardinal Cola $0.75 to make a case of cola and they sell it for $10.00 per case. Cardinal Cola estimates it costs $30.00 to setup the line to produce the cola (no matter how much cola is made during that setup). It costs $0.50 to hold one case of cola in inventory for one year. In addition, Cardinal Cola Corp. has decided to allow backorders. They estimate a backorder cost of $2.00 per case of cola backordered per month.
a. How many cases of cola should Cardinal Cola Corp. make at a time to minimize costs?
b. What is the maximum inventory level associated with the order quantity attained in part a?
c. What is the maximum number of backordered cases associated with the order quantity attained in part a?
d. What is the total relevant cost associated with the order quantity attained in part a?
e. How often should Cardinal Cola Corp. setup their line to produce cola? (i.e. what is the time between orders?