Tastee Mart sells Frostee Flakes. Demand for Frostee Flakes is 500 boxes per week. Tastee Mart has a holding cost of 30 percent and incurs a fixed cost of $100 for each replenishment order it places for Frostee Flakes
Given that cost is $2 per box of Frostee Flakes, how much should Tastee Mart order in each replenishment lot? If a trade promotion lowers the price of Frostee Flakes to $1.80 for a month, how much should Tastee Mart order given the short-term price reduction?
What will be an ideal response?
Answer:
Q* =
=
= 2943.92 ≈ 2944
Qd = (dD)/(C - d)h + CQ*/(C - d)
= (.2 × 26,000)/(2 - .2).3 + (2 × 2944)/(2 - .2)
= 12,900.74 ≈ 12,901
Forward buy = Qd - Q*
= 12,901 - 2944
= 9,957
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