Question
Hallmark Greetings has experienced a relatively constant demand of 2,000 cards per year for one particular type of greeting cards (GC1) and 1,200 cards for
Hallmark Greetings has experienced a relatively constant demand of 2,000 cards per year for one particular type of greeting cards (GC1) and 1,200 cards for another type of greeting cards (GC2). Hallmark orders each type of cards from a separate regional distribution that supplies cards to Hallmark at a rate of 160 units per week. Each distributor charges a fixed transportation cost of $200 per order. Hallmark estimated at $2 the cost of holding one unit one year in the warehouse. Furthermore, Hallmark quantified the missed return from holding inventory at 20% per year. The unit-costs of GC1 and GC2 are $5 and $7 respectively. Assume there are 50 weeks per year. Hallmark greetings was advised by an AB consultant. The consultant suggested that Hallmark works with only one distributor who will be supplying both cards at the same unit costs as before ($5 for GC1 and $7 for GC2). The shipment rate (160units/week) remains the same as well the transportation cost of $200 per order. However, each order will consist of a mix of both cards. 1- What is the optimal total ordering quantity of cards in this case? Hint. Find first the average unit holding cost. 2- What quantity of each type of cards will Hallmark be ordering?
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