Question

Identify the appropriate inventory model to obtain the optimal lot size for the given problem description: A small grocery store sells fresh produce, which it obtains from a local farmer. During the strawberry season, demand for fresh strawberries can be reasonably approximated using a normal distribution with a mean of 40 quarts per day and a standard deviation of 6 quarts per day. The grocer purchases fresh strawberries daily from the local farmer for $1.5 per quart and sells them for $3.20 per quart. At the end of each business day, any remaining strawberries are sold to a producer of fresh juice for 50 cents. a. Single Period b. Fixed Order Interval c. EOQ d. ROP e. None of the above

Answer 1

Answer:

d. ROP

Explanation

The economic order quantity is the minimum amount of inventory that a seller must keep to demand and lower the holding cost. The reorder point is the inventory management system in which a certain level of inventory is set as a trigger for reordering the stock. The cost of excess stock for the grocery store is $1 ($1.50 - $0.50). The cost of under cutting the inventory is $1.70 ($3.20 - $1.50). The cost of under stocking is more than cost of excess inventory. The best model which will suit the grocery store is ROP.