Question
The company Mid Way imports mineral water from a producer near Puy de Dme in France called CPD and sells it to retailers in Quebec.
The company Mid Way imports mineral water from a producer near Puy de Dme in France called CPD and sells it to retailers in Quebec. Demand from retailers in Quebec is very steady at 9,000 boxes per year and the selling price from Mid Way to its retailers is $100 per box. It takes exactly 1 month for a shipment to arrive from France. CPD charges Mid Way $80 per box of water ordered. For each order, it also charges a fixed fee $800 for order preparation and shipping. Mid Way rents a state-of-the art warehouse to keep the water in ideal condition. The rental cost covers space and electricity, which is $10 per box per year. It also costs Mid Way 10% of the purchasing cost per year in insurance fees. Assume that 1 month = 4 weeks, 1 week = 5 days, and 1 year = 50 weeks.
The CPD mineral water has a good reputation in Quebec and customers show willingness to wait when there is a stock out. The accountant estimates that it will cost Mid Way $30 (in the lost of future revenues and extra shipping costs) to backorder one box of water for one year.
For the benefit of Mid Way, what is the maximum number of customers to be backordered? Under this schedule, what is the maximum amount of time a customer needs to wait for the water?
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