] Daily demand for ice cream at the DallaScream parlor has a mean of 400 quarts
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Question
] Daily demand for ice cream at the DallaScream parlor has a mean of 400 quarts per day. The owner has the ice cream supplied by a wholesaler who charges $8 per quart. The wholesaler charges a $90 delivery charge independent of order size. The opportunity cost of capital to DallaScream is estimated to be 20% per year, and the additional storage cost of eeping the ice cream frozen and in stock is another 5% per year (making the effective rate to be 25%). Assume 360 days in a year. a. [2 points] What is the optimal order size for quarts of ice cream? b. [1] How often should an order be placed? nterestExplanation / Answer
Given Annual demand D = 400*360 = 144000 quarts
Ordering costs S = 90 $
Purchase price P = 8 $/quart
Holding cost H = Opportunity cost of capital + Handling cost = 0.25*8 = 2 $/unit
a) Optimal order size Q = SQRT(2*D*S/H) = SQRT(2*144000*90/2) = 3600 quarts
b) Order Frequency = Number of days per year/Number of orders
Number of orders N = D/Q = 144000/3600 = 40
Order Frequency = 360/40 = 9 days.
The order is placed every 9 days.
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