Ollah's Organic Pet Shop sells bags of cedar chips for pet bedding or snacking (buyer's choice). The

Question:

Ollah's Organic Pet Shop sells bags of cedar chips for pet bedding or snacking (buyer's choice). The supplier has of fered Ollah the following terms:
Order 1-100 bags, and the price is $6.00 a bag.
Order 101 or more bags, and the price is $4.50 a bag.
Annual demand is 630, fixed ordering costs are $9 per order, and the per-bag holding cost is estimated to be around $2 per year.
a. What is the for the bags?
b. What order quantity should Ollah order, based on the volume discount? Is this different from the EOQ? If so, how could this be?
c. Suppose the lead time for bags is a constant 2 weeks, and average weekly demand is 12.6 bags, with a standard deviation of 3.2 bags. If Ollah wants to maintain a 98% service level, what should her reorder point be?

Economic Order Quantity
Economic order quantity (EOQ) is the ideal order quantity a company should purchase to minimize inventory costs such as holding costs, shortage costs, and order costs. This production-scheduling model was developed in 1913 by Ford W. Harris and has...