Cerening is a distributor of breakfast cereal. The main problem for them so far has been matching supply with demand in a costly manner.

The yearly demand for the cereal is 3600 pounds. The price of each pound is $16. The procurement department informs you that each order costs $254 and that the yearly interest rate is 5.68 %. Note that the holding cost per pound per year is 'interest rate x price per pound'.

What is the Economic Order Quantity.

Round to two decimal digits.

Using the EOQ as the order quantity, what is the average number of orders in a year?

Round to the nearest integer.

The top management reviews this EOQ policy and expresses that this is very good start. However, they are not sure if the estimates of the fixed cost and holding cost are accurate. They ask you to evaluate how much the total relevant cost (the sum of ordering and holding cost) would change if the fixed cost or the holding cost change.

Calculate the total relevant cost with the information given in Question 1 but with a 20% higher fixed cost of $304.8 per order.

Round to the nearest integer value.

Calculate the total relevant cost with the information given in Question 1 but with a 20% higher annual interest rate 6.816 %.

Round to the nearest integer value.

Analyzing historical data reveals that in the past years the company's order quantity differed from the one you calculated in Question 1. For example, two years ago (in 2017) they chose a 30% higher order quantity than the one given in Question 1, and last year (in 2018) they chose a 30% lower order quantity than the one given in Question 1. Assume that in any given year you have the same parameters as in Question 1.

Which of the following statements are correct?

Select all correct answers

A 30% lower order quantity in 2018 can be optimal if demand and fixed cost were higher in 2018.

A 30% higher order quantity results in higher total relevant cost (the sum of ordering and holding cost) than a 30% lower order quantity.

A 30% lower order quantity results in higher total relevant cost (the sum of order and holding cost) than a 30% higher order quantity.

A 30% higher order quantity in 2017 can be optimal if the fixed cost was higher, the interest rate was lower, and the demand was higher in 2017.

A 30% higher order quantity in 2017 can be optimal if the fixed cost was higher or the demand was lower in 2017.

To date, the company had not allowed backorders in their models. Similarly, the current EOQ inventory policy does not allow for backorders. However, the Chief Financial Officer questions this approach. She points out that it may be better to accept a small level of backorders and in order to a lot of inventory costs. The Chief Operations Officer says the true savings can only be evaluated if we use the EOQ with backorders inventory policy. Answer the following. Assume that the parameters from Question 1 hold and that shortage costs are $1.3632 per pound per year.

Calculate the critical ratio.

Calculate the optimal number of planned backorders.

Round to two decimal digits.