Foods Galore is a major distributor to restaurants and other institutional food
ID: 360334 • Letter: F
Question
Foods Galore is a major distributor to restaurants and other institutional food users. Foods Galore buys cereal from a manufacturer for $24 per case. Annual demand for cereal is 252,500 cases, and the company believes that the demand is constant at 1,010 cases per day for each of the 250 days per year that it is open for business.Average lead time from the supplier for replenishment orders is six days, and the company believes that it is also constant. The purchasing agent at Foods Galore believes that annual ntory carrying cost is 25 percent and that it costs $34 to prepare, send, and receive an order. Use Table 7-2 a-1. How many cases of cereal should Foods Galore order each time it places an order? (Round your answer to the nearest whole number.) c order qu a-2. What will be the average inventory? (Round your answer to 1 decimal place.) a-3. What will be the inventory tumover rate? (Round your answer to 1 decimal place.) per a-4.Calculate the total annual cost based on a product cost of S24/unit. (Do not round intermediate calculations. Round your answer to 2 decimal places.) I annual costExplanation / Answer
Annual demand, D = 252,500
Demand rate, d = 1010 cases per day
Average lead time, L = 6 days
Annual inventory carrying cost per unit, H = 24*25% = $ 6
Ordering cost, K = $ 34
a-1. Economic Order Quantity = (2*D*K/H) = (2*252500*34/6) = 1692 cases
a-2. Average inventory = Q/2 = 1692/2 = 846 cases
a-3. Inventory turnover rate = D/(Q/2) = 252500/846 = 298 times
a-4. Total annual cost = (D/Q)*K + (Q/2)*H + D*P = (252500/1692)*34 + (1692/2)*6 + 252500*24 = $ 6,070,150