Mama Leones Frozen Pizzas uses 50,000 pounds of cheese per year. Each pound costs $5.50. The ordering

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Mama Leone’s Frozen Pizzas uses 50,000 pounds of cheese per year. Each pound costs $5.50. The ordering cost for the cheese is $250 per order, and its carrying cost is $1.50 per pound per year. Calculate the firm’s economic order quantity (EOQ) for the cheese. Mama Leone’s operates 250 days per year and maintains a minimum inventory level of 2 days’ worth of cheese as a safety stock. Assuming that the lead time to receive orders of cheese is 3 days, calculate the reorder point.

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...
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Principles of Managerial Finance

ISBN: 978-0134476315

15th edition

Authors: Chad J. Zutter, Scott B. Smart

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