Problem
I. Snow Candy Sdn Bhd produces Jumbo Almond Chocolate. The management recognizes the need to maintain an efficient stock procurement and stock controlsystem to avoid stock out or excess stock problem. The production of Jumbo Almond Chocolate is between 200 to 500 units of chocolate bar per week. Each bar of Jumbo Almond Chocolate requires 500 grams of cocoa powder. Currently, the company's reorder quantityis 800 kgs of cocoa powder for each purchaseand the lead time variesbetween 1 to 3 weeks.
Task
Compute the following stocklevels for cocoa powder (in kilograms).
1. Reorder level
2. Maximum stock level
3. Minimum stock level
II. Secret Cake House concerns about the inventory level of the main ingredient in producing cakes that is cake flour as the price of the cake flour keeps increasing due to inflation. The cake flour is currently ordered in quantities of 200 kgs per order at a cost of RM5.00 per kg. In order to produce a cake, 0.5 kg of cake flour is required. The demand for the cake is constant at 2,000 units every year. In preparing the order, the company incurred RM125 for freight cost per order.Immediately after receiving the cake flour,Secret Cake House insured the cake flour at 4% of the inventory valuein order to avoid extra cost of damaged cake flour in its storage house. The storage cost for the cake flour is RM0.80 per kg.
Task
1. Compute the Economic Order Quantity (EOQ) for the cake flour.
2. Compute the total costs if the company ordersthe materials at EOQ.
3. Explain two assumptions of EOQ.