Inventory Management:
One of the products stocked by Joe's Club is Joe's Cola, which is sold in cases. The demand level for Joe's Cola is highly seasonal.
- During theslow season, the demand rate is approximately 650 cases a month, which is the same as a yearly demand rate of 650*12 = 7800 cases.
- During the busy season, the demand rate is approximately 1300 cases a month, or 15,600 cases a year.
- The cost to place an order is $5, and the yearly holding cost for a case of Joe's Cola is $12.
(a) According to the EOQ formula, how many cases of Joe's Cola should be ordered at a time during the slow season? How many cases of Joe's Cola should be ordered during the busy season?
(b) Suppose Joe's Club decides to use the same order quantity throughout the year, resulting in an order quantity of 150 units. Calculate total holding and ordering costs for the year. Do not consider safety stock in your calculations. To do the calculations, annual demand can be calculated as an average of the slow and busy rates given above.