Andrew Jackson operates a health food bakery that uses a special type of ground flour in its products. The bakery operates 365 days a year. Andrew finds that he seems to order either too much or too little flour and asks for your help. After some discussion, you find he does not have any idea of when or how much to order. An examination of his records and Andrew’s answers to further questions reveal the following information:
Annual usage of flour
Average number of days delay between initiating and receiving an order
Estimated cost per order
Estimated annual cost of carrying a pound of flour in inventory
a. Calculate the economic order quantity for flour.
b. Assume that Andrew desires a safety stock cushion of seven days’ usage.
Calculate the appropriate order point.