Question

Rico needs 625 lbs of roast beef per week on average to make sandwiches for his cafe. The supplier charges a $11 delivery fee per order (which is independent of the order size) and $11.24 per lb. Rico’s annual holding cost is 28%. Assume 52 weeks per year. If Rico wants to minimize inventory holding and ordering costs, how much roast beef should he purchase with each order (in lbs)? (report your answer as an integer)

Answer 1

To minimize costs, Rico should purchase 125 lbs of roast beef with each order.

Step-by-step explanation:

To minimize inventory holding and ordering costs, Rico should purchase 125 lbs of roast beef with each order.

This can be calculated using the Economic Order Quantity (EOQ) model, which takes into account the supplier's delivery fee, the cost per pound, and the holding cost.

The EOQ formula is:

EOQ = sqrt((2 x D x S) / H)

Where:

• D = Demand per week = 625 lbs
• S = Delivery fee per order = $11
• H = Holding cost rate = 0.28 (28%)

Plugging in the values:

EOQ = sqrt((2 x 625 x 11) / 0.28) = 125 lbs

Therefore, Rico should purchase 125 lbs of roast beef with each order to minimize costs.