please show your answers:)) Economic Order Quantity Italia Pizzeria is a popular

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please show your answers:))

Economic Order Quantity Italia Pizzeria is a popular pizza restaurant near a university campus. Brandon Thayn, an accounting student, works for Italia Pizzeria. After several months at the restaurant, Brandon began to analyze the efficiency of the business, particularly inventory practices. He noticed that the owner had more than 50 items regularly carried in inventory. Of these items, the most expensive to buy and carry was cheese. Cheese was ordered in blocks at $17.50 per block. Annual usage totals 14,000 blocks Upon questioning the owner, Brandon discovered that the owner did not use any formal model for ordering cheese. It took five days to receive a new order when placed, which was done whenever the inventory of cheese dropped to 200 blocks. The size of the order was usually 400 blocks. The cost of carrying one block of cheese is 10 percent of its purchase price. It costs $40 to place and receive an order Italia Pizzeria stays open seven days a week and op December Required: 1. Compute the total cost of ordering and carrying the cheese inventory under the current policy er ates 50 weeks a year. The restaurant closes for the last two weeks of Ordering cost Carrying cost 2. Compute the total cost of ordering and carrying cheese if the restaurant were to change to the Economic Order Quantity Ordering cost Carrying cost How much would the restaurant save per year by switching policies? 3. If the restaurant uses the Economic Order Quantity, how many blocks of cheese would be in inventory when it is time to reorder? (Assume that the amount of cheese used per day is the same throughout the year.) blocks How does this compare with the current reorder policy? Select that storage space allows a maximum of 600 blocks of cheese. Answer the follo wing questions based on this 4. Suppose restriction. Round all dollar values to the nearest dollar What would the order quantity have to be? What would the ordering cost be? What would the carrying cost be? What would the total cost be? How much additional cost would there be? 5. Suppose that the maximum storage is 600 blocks of cheese and that cheese can be held for a maximum of 10 days. The owner will not hold cheese any longer than 10 days in order to ensure the right flavour and quality. Under these conditions, answer the following questions What is the maximum number of blocks of cheese that should be kept on hand? blocks How many units would be in inventory at the reorder point? units

Explanation / Answer

SOLUTION 1 Calculation of ordering cost and Carrying cost in existing system Ordering Cost Particulars amount No of Order(total annual usage / order quantity) 14000/400 No of order 35 ordering cost per order 40 total ordering cost 1400 Carrying cost Particulars orderd stock 400 blocks carrying cost per block (10% of cost) 1.75 Total carrying cost (ordered stock/2)*carrying cost 350 SOLUTION 2 Calculation of ordering cost and Carrying cost in EOQsystem EOQ= square root of (2 * annual demand*ordering cost)/carrying cost            =square root of (2*14000*40)/1.75              =800 Particulars amount No of Order(total annual usage / order quantity) 14000/800 No of order 17.5 ordering cost per order 40 total ordering cost 700 Carrying cost Particulars orderd stock 800 blocks carrying cost per block (10% of cost) 1.75 Total carrying cost (ordered stock/2)*carrying cost 700 the restaurant will save 1750-1400= 350 every year by shifting EOQ

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