Problem 1 a) Bernard operates a chocolate shop in Paris. The annual demand for chocolatecovered cherries...

Problem 1

a) Bernard operates a chocolate shop in Paris. The annual demand for chocolatecovered cherries is 2,500 units. The setup cost is $15 per order and the unit cost is $0.6. The holding cost per unit per year is 25% of the unit cost. Backordering is allowed at a cost of $0.6/unit/year. What is the optimum number of units per order and the corresponding backorder level? What is the expected number of orders per year? Assuming a 250 day working year, what is the expected time between orders? What are the total annual inventory costs? If delivery of the chocolates takes 2 days, at what level of stock should a new order be placed?

b) Suppose now that Bernard is offered the following whole unit discount model: If Bernard buys 400 units or less, it will cost him $0.7/unit, and if he buys more than 400 units it will cost him $0.5/unit. Will Bernard buys accept this offer?

Expert Solution

Colby Messinger answered 2 years ago

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