Question

Kimon’s dog, Bobos, every day eats on average 3 pounds of kibble with a standard deviation of 0.5 pounds. Kimon buys the kibble from an online retailer that charges $2 per pound of kibble. The retailer guarantees a 2-day delivery and the delivery fee is equal to $20. Living in a small house Kimon doesn’t have too much storage space, so he estimates that keeping a pound of kibble in the cabinet essentially costs him $0.2 per week. The retailer has two different sizes for kibble: 60 pound bags and 90 pound bags. Every time a new delivery arrives, Kimon throws away any leftover kibble so that he doesn’t mix new and old kibble. Also, if he runs out, he needs to replace the missing kibble with an equal amount of wet food which costs more, at $8 per pound. Note that z(0.75)=0.66.

a) Which size should Kimon order every time he places an order?

b) What is Kimon’s annual holding cost?

c) What is Kimon’s annual ordering cost?

d) How many days after the previous delivery on average does Kimon place an order?

Answer 1