General Cereal Company purchases various grains (e.g., wheat and corn) that it processes into ready-to-eat cereals. Its annual demand for wheat is 250,000 bushels. Assume that demand is uniform throughout the year.
The average price of wheat is $3.0625 per bushel (delivered). Annual inventory carrying costs are 16 percent of inventory value. The costs of placing and receiving an order are $98. Assume that inventory replenishment occurs virtually instantaneously. Determine the following:
a. Economic order quantity
b. Total annual inventory costs of this policy
c. Optimal ordering frequency