solution

The information provided for this question applies to this and the following 2 questions (so, question numbers 5-7). Mr. Jonathan Eastwood, the owner of a soda stand at the Champaign Market Place Mall finds that he sells on average 100 bottles of regular 16 oz. Coke a week. He currently purchases Coke at $0.40/bottle from the bottler (Coke Company). Each order placed with the bottler costs him $10 (shipping and handling). The holding cost is 25% per year. Use 52 weeks in a year. Indicate, showing your calculations, the Economic Order Quantity (EOQ) that he should be ordering if he uses the continuous review system for inventory management. Round your final response up to the next whole number.

In reality, there is some variation around the average weekly demand. Weekly demand approximately follows a Normal distribution with a mean of 100 bottles and a standard deviation of 10 bottles. After Mr. Eastwood orders from the bottler, it takes exactly 3 weeks to receive the order. If he wishes to provide a 95% service level (use z = 1.64) to his customers, when should he place an order if he opts to use the continuous review system for inventory management?

List two factors (provide one sentence describing each) that might cause Mr. Jonathan Eastwood to schedule an order quantity different from the EOQ that you computed in question 5. Reflect on violations of the assumptions required for using the EOQ model that may lead him to move away from the EOQ for his order quantity.