Question

Tastee Mart sells Frostee Flakes. Demand for Frostee Flakes is 500 boxes per week. Tastee
Mart has a holding cost of 30 percent and incurs a fixed cost of $100 for each replenishment
order it places for Frostee Flakes. Given that cost is $2 per box of Frostee Flakes, i) how
much should Tastee Mart order in each replenishment lot? ii) If a trade promotion lowers the
price of Frostee Flakes to $1.80 (d=$0.2) for one month, how much should Tastee Mart order
given the short-term price reduction? iii) What will be the forward buy? iv) For how many
periods will the forward buy be enough? V) What will be the cycle inventory over these
periods?

Answer 1

weekly demand, d	500	boxes
Annual Demand, D	26000	boxes (assuming 52 weeks in a year)
holding cost, Cc	0.3
ordering cost, Co	$     100	per order
product cost, p	$         2	per box
i) EOQ= sqrt(2*Co*D/Cc)
EOQ	2943.92	boxes
hence, Tastee Mart should order 2944 boxes in each replenishment lot
ii) d	$    0.20
Qd=[(d*D)/{(p-d)*Cc}]+[p*EOQ/(p-d)]
Qd=	12900.65	boxes
hence, Tastee Mart should order 12901 boxes given the short-term price reduction
iii) forward buy = Qd-EOQ	9956.73	boxes
hence, forward buy would be 9957 boxes
iv) no of periods = forward buy / weekly demand
	19.91	weeks
(please note, as per the answering guidelines, I can answer the first 4 parts of the question)

formulas used:

If you liked the answer, please give an up-vote, this will be very encouraging for me. Thank you!