Foods Galore is a major distributor to restaurants and other

institutional food users.

Foods Galore buys cereal from a manufacturer for $25 per case.

Annual demand for cereal is 235,000 cases, and the company believes

that the demand is constant at 940 cases per day for each of the

250 days per year that it is open for business. Average lead time

from the supplier for replenishment orders is eight days, and the

company believes that it is also constant. The purchasing agent at

Foods Galore believes that annual inventory carrying cost is 20

percent and that it costs $40 to prepare, send, and receive an

order. Use Table 7-2.

**a-1.** How many cases of cereal should Foods

Galore order each time it places an order? **(Round your
answer to the nearest whole number.)**

**a-2.** What will be the average inventory?

**(Round your answer to 1 decimal place.)**

**a-3.** What will be the inventory turnover rate?

**(Round your answer to 1 decimal place.)**

**a-4.**Calculate the total annual cost based on a

product cost of $25/unit. **(Do not round intermediate
calculations. Round your answer to 2 decimal places.)**

Foods Galore conducts an in-depth analysis of its inventory

management practices and discovers several flaws in its previous

approach. First, they find that by ordering 10,000 or more cases

each time, they can obtain a price of $23 per case from the

supplier.

**b-1.** Calculate the total annual cost based on a

product cost of $23/unit.

**b-2.** What order quantity should Foods Galore

place?

**b-3.** How much will they save annually by

ordering the quantity shown in Part b-2. instead of Part a-1?

**(Round your answer to 2 decimal places.)**

**c.** In its analysis, Foods Galore determined

that demand and lead time are not constant. In fact, demand has a

standard deviation of 71 cases per day and lead time has a standard

deviation of 1.3 days. Foods Galore management wants to evaluate

two service level policies. One policy would incur a 5 percent risk

of stockout while waiting for replenishment, the other only a 1

percent risk of stockout. What would be the cost of carrying the

safety stocks for each of the two policies? **(Do not round
intermediate calculations. Round your final answers to 2 decimal
places.)**

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