The Deer Valley Farm produces a natural organic fertil-izer, which it sells mostly to gardeners and homeowners. The annual demand for fertilizer is 220,000 pounds. Thefarm is able to produce 305,000 pounds annually. Thecost to transport the fertilizer from the plant to the farmis $620 per load. The annual carrying cost is $0.12 perpound.a. Compute the optimal order size, the maximum inventorylevel, and the total minimum cost.b. If the farm can increase production capacity to 360,000pounds per year, will it reduce total inventory cost?
The Deer Valley Farm produces a natural organic fertil-izer, which it sells mostly to gardeners and homeowners. The annual demand for fertilizer is 220,000 pounds. Thefarm is able to produce 305,000 pounds annually. Thecost to transport the fertilizer from the plant to the farmis $620 per load. The annual carrying cost is $0.12 perpound.a. Compute the optimal order size, the maximum inventorylevel, and the total minimum cost.b. If the farm can increase production capacity to 360,000pounds per year, will it reduce total inventory cost?
Chapter10: Short-term Decision Making
Section: Chapter Questions
Problem 6MC: Jansen Crafters has the capacity to produce 50,000 oak shelves per year and is currently selling...
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Question
The Deer Valley Farm produces a natural organic fertil-
izer, which it sells mostly to gardeners and homeowners.
The annual demand for fertilizer is 220,000 pounds. The
farm is able to produce 305,000 pounds annually. The
cost to transport the fertilizer from the plant to the farm
is $620 per load. The annual carrying cost is $0.12 per
pound.
a. Compute the optimal order size, the maximum inventory
level, and the total minimum cost.
b. If the farm can increase production capacity to 360,000
pounds per year, will it reduce total inventory cost?
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