Question

A cafeteria is using milk for its daily operations. Assume that the cafeteria is open 325 days a year and its daily demand is estimated at 10 gallons. Carrying costs are $3 per gallon per year. Ordering costs are estimated at $25 per order. It takes 3 days for each order of flour to be filled.

1. What is the Economic Order Quantity?
2. Assume no safety stock is required, what is bakery reorder point?
3. What is the Total Annual Ordering Cost?
4. What's the number of optimal orders placed in a year?

Answer 1

Number of working days per year= 325 days

Daily demand= 10 gallons

Annual demand= 10*325= 3250 gallons

Annual carrying cost per gallon, H= $3

Ordering cost, S= $25

Lead time = 3 days

1. Economic order quantity, Q= √(2DS/H)

                                               = √(2*3250*25/3)

                                               = 232.74 gallons

2. Reorder point= lead time in days*average daily demand

                              = 3*10= 30 gallons

3. Total annual ordering cost= (D/Q)S

                                                   = (3250/232.74)25

                                                   = $349.1

4. Number of optimal orders placed in a year= (D/Q)= 3250/232.74

                                                                                = 13.96≈ 14 orders