Q1:

The information in this paragraph applies to this question and the five questions that follow (so, questions 1-6).

The annual demand for the Super Thrive brand plant food manufactured by Cumberbatch and Dunst Indoor Plants Company is 120,000 pounds. The annual holding cost (also known as carrying charge) is $0.05 per pound, and Operations Manager Kirsten Benedict has calculated the cost of setting up machinery for making the plant food to be $20.

The company currently uses a batch size of 5,000 pounds for making Super Thrive. What is the annual holding (carrying) cost based on this batch size?

Q2:

What is the annual setup cost based on the current batch size of 5,000 pounds?

Q3:

What is the economic order quantity (EOQ) based on the information provided? (Round the EOQ to the next whole number).

Q4:

What is the annual holding (carrying) cost for the EOQ that you calculated?

Q5:

What is the annual setup cost for the EOQ that you calculated?

Q6:

Compare the total cost of inventory management (holding + setup cost) for the two quantities (5,000 and the EOQ you calculated) and comment on the difference. Based on your knowledge of the idea behind EOQ, what explains the differences (in words - no need to reconcile the exact differences quantitatively).

You are expected to write three to five sentences in response to this question. There is no restriction on the length.

Q7:

The information in this paragraph applies to this question and the three questions that follow (so, questions 7-10).

Store manager Rosala has noted that the daily demand for the exclusive Motomami candles produced and sold in her Fire Doll Artisan Chandlery located in downtown Champaign is 40 candles. Fire Doll Artisan Chandlery remains open 365 days a year. The lead time for producing the candles is 9 days. Rosala uses a continuous review system to manage her inventory relying on economic order quantity (EOQ) to decide how much to make and reorder point (ROP) to decide when to make.

Determine the reorder point assuming the daily demand is spread evenly (i.e., no safety stock).

Q8:

Rosala notes that daily demand has a standard deviation of 4 candles. Calculate the safety stock for a 99% service level, the z score for which, using the function =NORM.S.INV(0.99) in Microsoft Excel, is 2.33.

Q9:

Rosala makes the candles in quantities of 560 at a time. How many times does she need to make the candles every year? (Round this to the nearest whole number).

Q10:

Based on the batch size of 560 candles, how often (every how many days) does she need to make the candles? (Round this to the nearest whole number).