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Required
1. Compute the total cost of ordering and carrying the cheese inventory under the current policy.
2. Compute the total cost of ordering and carrying cheese if the restaurant were to change to the
economic order quantity. How much would the restaurant save per year by switching policies?
3. If the restaurant uses the economic order quantity, when should it place an order? (Assume that the
amount of cheese used per day is the same throughout the year.) How does this compare with the
current reorder policy?
4. Suppose that storage space allows a maximum of 600 blocks of cheese. Discuss the inventory policy
that should be followed with this restriction.
5. Suppose that the maximum storage is 600 blocks of cheese and that cheese can be held for a
maximum of 10 days. The owner will not hold cheese any longer in order to ensure the right flavor and
quality. Under these conditions, evaluate the owner’s current inventory policy.
Answer
1. D = 14000 Blocks
Q = 400 Blocks
P = 7000
C = 1.75
TC = PD/Q+CQ/2 = (7000x14000)/400 + (1.75x400)/2
=245350
2.