Deep Six Seafood, a restaurant that’s open 360 days a year, specializes in fresh

Question

Deep Six Seafood, a restaurant that’s open 360 days a year, specializes in fresh Maine lobsters at a cost of $12.50 each. Air freight charges have increased significantly and it now costs Deep Six $50 to place an order. Because the lobsters are shipped live in a saltwater tub, the ordering cost is not affected by order sizes. The cost to keep a lobster alive until needed runs about $0.02 per day. The demand for lobsters during the 1-day lead time is as follows:

Lead-time Demand:

Probability:

0

.10

1

.30

2

.25

3

.20

4

.05

5

.10

Deep Six would like to reconsider its order size.  What would you recommend as an EOQ?

35

40

69

245

None of the above.

E is not the right answer

Using the information in the previous problem, if Deep Six insists on maintaining a safety stock of 2 lobsters, at what reorder point should Deep Six place another order?

5

12

14

35

40

A is not the righty answer

Lead-time Demand:

Probability:

0

.10

1

.30

2

.25

3

.20

4

.05

5

.10

Explanation / Answer

The economic order quantity is ((2*Fixed cost*Total units Demand)/carrying cost)1/2

so the EOQ for first will be (2*4*50/0.02)1/2 the answer will be 40

We have to first find the minimum quantity demanded that will be got by getting the total investment divided by price per lobster.

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