Problem 1
a) Bernard operates a chocolate shop in Paris. The annual demandfor chocolatecovered cherries is 2,500 units. The setup cost is $15per order and the unit cost is $0.6. The holding cost per unit peryear is 25% of the unit cost. Backordering is allowed at a cost of$0.6/unit/year. What is the optimum number of units per order andthe corresponding backorder level? What is the expected number oforders per year? Assuming a 250 day working year, what is theexpected time between orders? What are the total annual inventorycosts? If delivery of the chocolates takes 2 days, at what level ofstock should a new order be placed?
b) Suppose now that Bernard is offered the following whole unitdiscount model: If Bernard buys 400 units or less, it will cost him$0.7/unit, and if he buys more than 400 units it will cost him$0.5/unit. Will Bernard buys accept this offer?
