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A food processor uses approximately 21000 glass jars a month for its fruit juice product. Because of storage limitations, a lot size of 2000 jars has been used. Monthly holding cost is 25 cents per jar, and reordering cost is $ 55 per order. The company operates an average of 24 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 the order size. One possibility is to simplify the order processing to reduce the order cost. What ordering cost would enable the manager to justify ordering every order?
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Using the standard cost method would be more valuable so as to take into account the changing trends in production.
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