EMGT 619: Week 6 HW Due November 14, 2011 1.Cruncy, a cereal manufacturer has dedicated a plant for one major retail chain. Sales at the retail chain average about 20,000 boxes a month and production at the plant keeps pace with this average demand. Each box of cereal costs Crunchy $3 and is sold to the retailer at a wholesale price of $5. Both Crunchy and the retailer use a holding cost of 20%. For each order placed, the retailer incurs an ordering cost of $200 per order placed. Crunchy incurs the cost of transportation and loading that totals $1,000 per order shipped. a) Given that it is trying to minimize its ordering and holding cost, what lot size will the retailer ask for in each order? What is the annual ordering and holding cost for the retailer, Crunchy and the supply chain? b) What lot size minimized the inventory costs (order, delivery and holding) across both Crunchy and the retailer? How does this dier from the cost in part a? c)How much of the $1,000 delivery cost should Crunchy pass along to the retailer for each lot to get the retailer to order the quantity in part b? 1
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