Reference no: EM131314662

1) A local food processing firm uses (demand) 24,000 glass jars to produce gourmet jams and jellies per year. It costs the firm $60 each time it places an order for jars with the manufacturers. The inventory carrying (holding) cost is $0.08 per jar per year. The stock is received 4 working days after an order has been placed. No backorders are allowed. Assume 300 working days a year.

a) Because of space limitations, suppose the firm orders 5,000 jars at a time. What is the annual holding cost of this policy? Annual ordering cost? What would be the annual cost saved by shifting from the 5000-jars order policy to the EOQ?

b) The firm would prefer to order eight times per year but need to justify any change in order size. By how much would ordering cost need to be reduced to justify eight orders per year?

c) If the average cost per jar is $1.5 and the supplier of jars offers a discount of 5% if the food processor orders a minimum of 8,000 jars at a time, should the processor accept the deal assuming annual demand of 24,000 jars? Would your answer change if the discount is 1%?

d) Suppose the standard deviation of daily demand for jars is 25. The operation manager has specified that no more than a 10% risk of stockout is acceptable during the lead time. Calculate the standard deviation of demand during lead time. How many safety stock should be held? Calculate the annual holding cost of maintaining the level of safety stock? What reorder point (ROP) should be used?