Question

MamaMia’s Pizza purchases its pizza delivery boxes from a printing supplier. MamaMia’s delivers on average 225 pizzas each month (assume deterministic demand). Boxes cost 43 cents each, and each order costs $12.50 to process. Because of limited storage space, the manager wants to charge inventory holding at 25 percent of the cost. The lead time is 7 days, and the restaurant is open 360 days per year, assuming 30 days per month.

1. Draw a graph that sows the relationships among inventory carrying (holding) cost, order cost, and total annual cost.

Answer 1

a. Graph that sows the relationships among inventory carrying (holding) cost, order cost, and total annual cost

Order Quantity (Q)	Order cost	inventory carrying (holding) cost	Total Annual cost
	(D/Q)* S	(H*Q)/2	(D/Q)* S + (H*Q)/2
300	112.50	16.13	128.63
400	84.38	21.50	105.88
500	67.50	26.88	94.38
600	56.25	32.25	88.50
700	48.21	37.63	85.84
792.41 (EOQ)	42.59	42.59	85.18
800	42.19	43.00	85.19
900	37.50	48.38	85.88
1000	33.75	53.75	87.50
1100	30.68	59.13	89.81
1200	28.13	64.50	92.63
Demand (D)	2700
Ordering cost S	$12.50
Carrying Cost H	$0.11
EOQ =(2*D*S/H)	792.41

At Economic order quantity (EOQ); Order cost hand Inventory carrying cost are equal and total annual cost is lowest.