Assignment

1. General Mills faces annual demand for its Wheat Chex and Corn Chex cereals of 480,000 and 840,000 boxes respectively. Each box contains 18 ounces of cereal, and 50% of the weight of the cereal comes from its grain (wheat or corn). General Mills has computed its ordering cost as 560 per order. They pay their supplier 15 cents per pound (there are 16 ounces in a pound) of wheat and 10 cents per pound of corn. The annual holding cost of either grain is 20% of the value of the grain.

a. What are the optimum order sizes for wheat and corn when purchased separately?

b. If you combine orders for each grain into one monthly order, it will still only cost 560 for the combined order. If an order is placed every month, what is the difference in the total annual procurement related cost between this new policy and the policy calculated above (part a).