1) David\'s Delicatessen flies in Hebrew National salamis regularly to satisfy a
ID: 370846 • Letter: 1
Question
1) David's Delicatessen flies in Hebrew National salamis regularly to satisfy a growing demand for the salamis in Silicon Valley. The owner, David Gold, estimates that the demand for the salamis is pretty steady at 175 per month. The salamis cost Gold $1.85 each. The fixed cost of calling his brother in New York and having the salamis flown in is $200. It takes three weeks to receive an order. Gold's accountant, Irving Wu, recommends a holding cost of 27 percent that includes; cost of capital, cost of shelf space and cost of the value for taxes and insurance. a) How many salamis should Gold have flown in and how often should he order them? L- C: 1.8sExplanation / Answer
Answer to question 1 .a:
Number of Salamis to be flown in will be decided on basis fo Economic Order Quantity ( EOQ ) model
Accordingly ,
EOQ = Square root ( 2 x Co x D/Ch )
Co = Fixed cost of Salamis being flown in = $200
D = Annual demand = 175/ month x 12 months = 2100
Ch = Annual unit inventory holding cost = 27% of $1.85 = $ 0.4995
Therefore,
EOQ = Square root ( 2 x 200 x 2100 / 0.4995)
= 1296.79 ( 1297 rounded to nearest whole number)
Annual demand i.e. total requirement for 52 weeks will be 2100
Hence, EOQ of 1297 will be consumed in = ( 52/2100) x 1297 = 32.11
Hence it should be ordered at every 32.11 weeks interval
NUMBER OF SALMIS TO BE FLOWN IN = 1297
SALAMIS SHOULD BE ORDERED AT FREQUENCY OF 32.11 WEEKS
NUMBER OF SALMIS TO BE FLOWN IN = 1297
SALAMIS SHOULD BE ORDERED AT FREQUENCY OF 32.11 WEEKS
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