The local supermarket buys lettuce each day to ensure really fresh produce. Each morning any lettuce that is left from the previous day is sold to a dealer that resells it to farmers who use it to feed their animals. This week the supermarket can buy fresh lettuce for $6.00 a box. The lettuce is sold for $18.00 a box and the dealer that sells old lettuce is willing to pay $3.60 a box. Past history says that tomorrow's demand for lettuce averages 254 boxes with a standard deviation of 37 boxes.

Problem 20-15

Given the following information, formulate an inventory management system. The item is demanded 50 weeks a year.

Item cost	$	12.00		Standard deviation of weekly demand	20	per week
Order cost	$	224.00		Lead time	2	weeks
Annual holding cost (%)		35	% of item cost	Service probability	95	%
Annual demand		24,700
Average demand		494	per week

a.	Determine the order quantity and reorder point. (Use Excel's NORMSINV() function to find the correct critical value for the given α-level. Do not round intermediate calculations. Round "z" value to 2 decimal places and final answer to the nearest whole number.)

Optimal order quantity	units
Reorder point	units

b.	Determine the annual holding and order costs. (Round your answers to 2 decimal places.)

Holding cost	$
Ordering cost	$

c.	Assume a price break of $55 per order was offered for purchase quantities of 2,000 or more units per order. If you took advantage of this price break, how much would you save annually? (Round your answer to 2 decimal places.)

Annual savings

$

Problem 20-18

Demand for an item is 1,700 units per year. Each order placed costs $8; the annual cost to carry items in inventory is $3 each. In what quantities should the item be ordered? (Round your answer to the nearest whole number.)

Optimal order quantity

units