Problem:
Cat Lovers Inc. (CLI) is the distributor of a very popular blend of cat food that sells for $1.25 per can. CLI experiences demand of 500 cans per week on average. They order the cans of can food from the Nutritious & Delicious Co. (N&D). N&D sells cans to CLI at $0.50 per can and charges a flat fee of $7 per order for shipping and handling.
CLI uses a fixed order size as their inventory policy. Assume that the opportunity cost of capital and all other inventory cost is 15 percent annually and that there are 50 weeks in a year.
Required:
Question 1) How many cans of food should CLI order at a time?
Question 2) What is CLI's total order cost for one year?
Question 3) What is CLI's total holding cost for one year?
Question 4) What is CLI's weekly inventory turns?
Question 5) Determine the reorder level (on hand inventory at time of reorder) if the replenishment lead time is three weeks.
Question 6) Assume N&D is willing to give a 1 percent quantity discount if CLI orders more than 5,000 or more cans at a time. If CLI is interested in minimizing its total cost (i.e., purchase and inventory? related costs), should CLI begin ordering 5,000 or more cans at a time?
Solve the problem and show all work.