Calculate the critical ratio

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Reference no: EM132201708

You are the owner of a small sand and gravel reselling business in Maine. One of the products you have is a special, high-quality gravel. You buy the gravel in larger orders. From the sales department you collect the yearly demand 2900 pounds. Your colleagues from procurement let you know that you pay $268 per order and that you have a yearly interest rate of 11.1 %. You pay $18 per pound of gravel. That is, your holding cost per pound and year are ‘interest rate x price per pound’.

After some consideration you are thinking that you may be willing to accept planned back orders. Assume that your parameters from Question 1 hold and that shortage costs are $2.997 per unit-year.

Calculate the critical ratio.

Reference no: EM132201708

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