A food processor uses approximately 27,000 glass jars a month for its fruit juice product. Because of storage limitations, a lot size of 4,000 jars has been used. Monthly holding cost is 18 cents per jar, and reordering cost is $60 per order. The company operates 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 any change in order size. One possibility is to simplify order processing to reduce the ordering cost. What ordering cost would enable the manager to justify ordering every other day?
c. Suppose that after investigating ordering cost, the manager is able to reduce it to $50. How else could the manager justify using an order size that would be consistent with ordering every other day?