TexMex Foods operates a plant in Irving, Texas, formanufacturing Taco sauce used in fast food restaurants. The sauce,which is packaged in plastic containers, is made from a specialrecipe that includes tomato concentrate, onions and chile peppersthat TexMex purchases from various suppliers. The plant operates365 days a year and TexMex uses an annual holding cost rate of 18%.Tomato Concentrate TexMex Foods purchases its tomato concentratefrom Hunt farms. The company requires 2500 gallons of concentrateper day to manufacture this sauce. Hunt Farms offers customers thefollowing all units price discount schedule: Number of GallonsOrdered 1 – 9999 10,000 – 49,999 50,000 – 124,999 125,000 – 249,999250,000 or more Price per Gallon $3.12 $3.08 $3.02 $3.01 $2.96 Theshelf life of the concentrate is 80 days, and the ordering cost is$750. Orders must be placed in 1000-gallon increments. The companydesires a safety stock of 10,000 gallons, and the lead-time fordelivery is 10 days. Management wishes to determine the optimalorder quantity for the concentrate as well as the reorderpoint.
