Question

On average, ShopRite Morristown sells 10 boxes of Kellogg's® Special K breakfast cereal each day. ShopRite purchases the cereal at $2 per box from Kellogg's. ShopRite Morristown opens 365 days a year.

Currently, ShopRite Morristown orders Kellogg's® Special K at an order size of 365. The cost of processing an order for Kellogg's® Special K is $35. The cost of holding one box of Kellogg's® Special K for a year is 20% of the purchasing price.

What is the EOQ for Kellogg's® Special K?

Answer 1

The EOQ for Kellogg's® Special K at ShopRite Morristown is approximately 799 boxes, calculated using the standard EOQ formula which incorporates the annual demand, ordering cost, and holding cost rate.

Step-by-step explanation:

The student is asking about the Economic Order Quantity (EOQ) for Kellogg's® Special K at ShopRite Morristown. EOQ is the optimal order quantity that minimizes the total cost of inventory management, which includes ordering costs and holding costs. To calculate the EOQ, we use the EOQ formula:

EOQ Formula

EOQ = √((2 * Demand * Ordering Cost) / Holding Cost Rate)

Here is the calculation based on the information provided:

• Demand (annual) is the number of boxes sold in a year: 10 boxes/day * 365 days = 3,650 boxes.
• Ordering Cost is the cost of processing an order: $35.
• Holding Cost Rate is the cost of holding one box for a year: 20% of $2 purchase price = $0.40.

Substituting these values into the EOQ formula gives us:

EOQ = √((2 * 3,650 boxes * $35) / $0.40) = √(255,500 / 0.40) = √(638,750) ≈ 799 boxes.

Therefore, the EOQ for Kellogg's® Special K is approximately 799 boxes.