ANSWER ALL THE QUESTIONS COMPREHENSIVELY WITH CLEAR EXPLANATION

A Place to Toast is the main bar which has been under operation since 5 years in the Turtle Bay Resort and as per past records it was noted that the bar dispenses an average of 255 glasses of beer per day from the draft beer counter. Kegs are purchased on a weekly basis from the supplier at the price of Rs2850.00 per keg. Every time an order is made, the fixed costs for placing the order amount to Rs300. The supplier claims a carrying cost of 15% for each delivery per unit. Taking into consideration fluctuation in demand with happy hour on every Fridays and the high level of costs involved in deliveries and ordering costs, the manager has asked you to assess:

• 1) The Economic Order Quantity to the nearest keg in order to save on fixed and carrying costs
• 2) Number of orders that would need to be done per year to the nearest order
• 3) The cost that would be generated on carriage fare and number of orders
• 4) The lead time between each order to the nearest day assuming a year consists of 365 days

5) If deliveries are made in fix quantities of 12 kegs each.

Assess the additional costs that would be generated on the number of orders for a year at new EOQ.

6) The bar manager has bargained for a free keg of beer on every purchase of 12 kegs; critically evaluate the saving that the bar will make on the total purchase price of beer on a year.