Question: ( Pet food retailer: EOQ & sensitivity analysis) [20%] A pet food store operates 52 weeks per year. It purchases kitty litter for $11.7 per bag. The following information is available about the product.

Demand = 90 bags/week; Ordering cost=$54 per order

Annual holding cost =27% of unit-purchase cost

1. The store currently uses a lot size of 500 bags. What is the annual holding cost of this policy? Annual ordering cost? (Do NOT round the order frequency to an integer.) Without calculating the EOQ, how can you conclude that the current lot size does not minimize total cost?
2. What is the EOQ? What would be the average time between orders (in weeks)?
3. What would be the annual cost saved by shifting from the 500-bag lot size to EOQ?
4. Suppose that the EOQ policy, as determined in Part (b), was implemented for a few weeks. Then, actual demand starts shifting to 60 bags per week, but the ordering cost is cut to only $6 per order by using the internet to automate order placing. However, the purchasing manager of the firm does not tell anyone, and the EOQ calculated in Part (b) is not adjusted to reflect these two changes. How much higher will total costs be, compared to what they could be if the EOQ were adjusted?

Price: $2.99

Solution: The downloadable solution consists of 5 pages
Deliverable: Word Document