Foods Galore is a major distributor to restaurants and other
institutional food users.
Foods Galore buys cereal from a manufacturer for $24 per case.
Annual demand for cereal is 215,000 cases, and the company believes
that the demand is constant at 860 cases per day for each of the
250 days per year that it is open for business. Average lead time
from the supplier for replenishment orders is eight days, and the
company believes that it is also constant. The purchasing agent at
Foods Galore believes that annual inventory carrying cost is 20
percent and that it costs $52 to prepare, send, and receive an
order. Use Table 7-2.
a-1. How many cases of cereal should Foods
Galore order each time it places an order? (Round your
answer to the nearest whole number.)
a-2. What will be the average inventory?
(Round your answer to 1 decimal place.)
a-3. What will be the inventory turnover rate?
(Round your answer to 1 decimal place.)
a-4.Calculate the total annual cost based on a
product cost of $24/unit. (Do not round intermediate
calculations. Round your answer to 2 decimal places.)
Foods Galore conducts an in-depth analysis of its inventory
management practices and discovers several flaws in its previous
approach. First, they find that by ordering 13,000 or more cases
each time, they can obtain a price of $22 per case from the
supplier.
b-1. Calculate the total annual cost based on a
product cost of $22/unit.
b-2. What order quantity should Foods Galore
place?
b-3. How much will they save annually by
ordering the quantity shown in Part b-2. instead of Part a-1?
(Round your answer to 2 decimal places.)
c. In its analysis, Foods Galore determined
that demand and lead time are not constant. In fact, demand has a
standard deviation of 63 cases per day and lead time has a standard
deviation of 1.8 days. Foods Galore management wants to evaluate
two service level policies. One policy would incur a 5 percent risk
of stockout while waiting for replenishment, the other only a 1
percent risk of stockout. What would be the cost of carrying the
safety stocks for each of the two policies? (Do not round
intermediate calculations. Round your final answers to 2 decimal
places.)
