Question

Pixar Foods faces annual demand for Rice Krisp and Oat Crisp cereals of 480,000 and 840,000 boxes respectively. Each box contains 9 ounces of the respective grain (rice or oats and never both), and both grains are imported from India. Pixar Foods has computed its ordering cost as US$60 per order. They pay their Indian supplier 12.5 US cents per pound (there are 16 ounces in a pound) of Rice and 10 cents per pound of Oats. The annual holding cost of either grain is 20% of the value of the grain.

Answer the following questions based on the data above (choose the closest number).

The optimum order quantity for rice in pounds is:

Answer 1

The optimum order quantity for rice in pounds is approximately 513 pounds.

Step-by-step explanation:

To calculate the optimum order quantity for rice in pounds, we need to consider the Economic Order Quantity (EOQ) formula, which is given by:

EOQ = √((2 * demand * setup cost) / holding cost)

Here, the demand for Rice Krisp cereal is 480,000 boxes, and each box contains 9 ounces of rice. Therefore, the demand for rice in pounds is calculated as follows: demand in pounds = demand in ounces / 16 = 480,000 * 9 / 16 = 270,000 pounds.

Plug in the values in the EOQ formula: EOQ = √((2 * 270,000 * 60) / (0.2 * 0.125)). Solving this equation, the optimum order quantity for rice in pounds is approximately 513 pounds.