The Kirei-Hana Japanese Steak House in San Francisco consumes 4,000 pounds of sirloin steak per month. Yama Hirai, the new restaurant manager, recently completed an MBA degree. He wants to improve the management of the inventory of raw steak at the restaurant. He estimates that the setup cost is $75 for each order, and he is comfortable with using a 40% holding cost rate. Assume that the current cost of the sirloin steak to the steak house is $6 per pound.
a. What should the standing order quantity be for steak, and how often will orders be placed?
b. The supplier has just offered Mr. Hirai an opportunity to take advantage of a one-time discount price of $5.10 per pound (a 15% savings off the regular price) on as many pounds as he would like to buy. How many pounds of steak should Mr. Hirai purchase for this single order?