Question

A major liquor store finds that it sells an average of 100 bottles a week of regular 750 ml bottles of Jameson Irish Whiskey. Assume that there are 50 weeks in a year, and the demand occurs at a constant rate. The holding costs are estimated to be $2 per bottle per year. The liquor store currently purchases whiskey once in every two weeks, and a new order arrives exactly when the previous batch is completely sold out. Each order placed with the supplier costs the liquor store $10. Answer the following questions.(a) What is the current order cycle length? Express your answer in years. Round your answer to two decimals if needed.(b) What is the current order size? Recall that a new order arrives exactly at the moment when the previous batch is sold out.(c) What is the average inventory of Jameson whiskey at this liquor store?(d) With the current order quantity, how much does the liquor store spend per year on ordering the inventory of Jameson whiskey?(e) With the current order quantity, what are their inventory holding costs per year?(f) What order quantity would have minimized their total annual inventory costs? Assume that they will change their order schedule accordingly: that is, they may order more or less frequently than once in two weeks. Round your answer to the closest integer (i.e., no order quantities like 10.5 bottles are allowed)(g) What is the annual management-cost penalty the liquor store is currently paying for using the order quantity other than the optimal one? To find it, subtract the current total annual inventory cost associated with EOQ from their current annual inventory costs. Express your answer in dollars (not percentage change!), round to two digits if necessary.

Answer 1

Answer:

• 0.04 year

• 200 bottles

• 100 bottles

• 250

• 200

Explanation:

A)  The current order cycle length = 2 weeks

= 2 / 50 year = 0.04 year

B) The current order size

cycle time ( 2 weeks ) * demand per unit time ( 100 bottles )

= 2 * 100 bottles = 200 bottles

C) average inventory

= order size / 2 weeks = 200 / 2 = 100 bottles

D) calculate how much the liquor store spend per year on ordering

first we calculate the number of orders per year = 50 / 2 = 25

next the amount spent per year on ordering = 25 * 10 = 250

E) calculate  inventory holding costs per year

= average inventory * cost of holding per bottle

= 100 * 2 = 200