Mama Leone\'s Frozen Pizzas uses 44,000 pounds of cheese per year. Each pound co
ID: 2586255 • Letter: M
Question
Mama Leone's Frozen Pizzas uses 44,000 pounds of cheese per year. Each pound costs $2.50. The ordering cost for the cheese is $249.90 per order, and its carrying cost is $0.51 per pound per year. Calculate the firm's economic order quantity (EOQ) for the cheese. Mama Leone's operates 300 days per year and maintains a minimum inventory level of 5 days' worth of cheese. Assuming that the lead time to receive orders of cheese is 4 days, calculate the reorder point. 9. pounds of cheese. (Round to the nearest whole The EOQ that minimizes the total inventory costs is number.) The reorder point for Mama Leone's is pounds of cheese. (Round to the nearest pound.)Explanation / Answer
Solution:
Calculation of Economic Order Quantity (EOQ)
Annual requirement (A) = 44,000 Pounds
Ordering Cost per order (O) = $249.90 per order
Carrying Cost per pound per year (Y) = $0.51 per pound per year
EOQ = (2 x Annual Requirement x Ordering Cost per order) / Carrying cost per pound per year)1/2
= ((2 x 44,000 x 249.90) / 0.51)1/2
= 6,566.58 or 6,567 pounds
Reorder Point - The level of stock at which fresh / new order should be placed
Re Order Point = Minimum Level + (Average Consumption x Average Lead Time)
Total Requirement = 44,000 Pounds
Average Requirement Per day = 44,000 / 360 = 122.22 pounds
Minimum Level = 122.22 x 5 = 611.11 Pounds
Average Lead Time Consumption = Daily Consumption x Lead Time = 122.22 Pounds x 4 = 488.88
Re Order Point = 611.11 + 488.89 = 1,100 Pounds
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