You are the owner of Hotspices.com, an online retailer of hip, exotic, and hard-to-find spices....
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Accounting
You are the owner of Hotspices.com, an online retailer of hip, exotic, and hard-to-find spices. Consider your inventory of saffron, a spice (generally) worth more by weight than gold. You order saffron from an overseas supplier with a shipping lead time of seven weeks and you order biweekly. Average quarterly demand is normally distributed with a mean of 625 ounces and a standard deviation of 185 ounces. The holding cost per ounce per week is $0.95. Assume there are 4.33 weeks per month.
a. Suppose the period length of 2 weeks mimics that of EOQ, what is the ordering cost?
b. Suppose order-up-to level is 320 ounces. You are about to place an order and note that your inventory level is 168.22 ounces and you have scheduled receipts of 36.08 ounces. How much will you order?
c. Suppose your order-up-to level is 500 ounces, what is the in-stock probability?
d. What is the optimal order-up-to level if you want to target a 85 percent in-stock probability?
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