Kuh’s is a leading Canadian ice cream chain. They have a huge fan base of 10,000 customers for their Coconut Macadamia Nut ice cream, On average, each of those customers consumes 10 liters of their Coconut Macadamia Nut ice cream per year with a standard deviation of 5 liters per year. Assume one kg of unprocessed macadamia nuts is needed to make one liter of this ice cream, The macadamia nuts (and the coconuts) are imported from Hawaii. The cost of unprocessed macadamia nuts is $10/kg. Each shipment has a fixed cost $5,225 plus $375 for custom clearance charges. The lead time for the shipments is 3 weeks. Mr. Keller, the purchasing manager of Kuh’s, estimates that the annual holding cost of unprocessed macadamia nuts is approximately 15% of the purchasing cost. Mr. Keller seeks to minimize the total annual cost, which consists of the annual shipping cost, annual holding cost, and annual purchasing cost. Assume there are 52 weeks in a year.
a/ What is the optimal order quantity for each shipment? Round your answer to 2 decimal places.
b/ How many trips are needed per year if the order quantity computed in Question “a” is used? Round your answer to 2 decimal places
c/ What is the annual shipping cost incurred by Kuh’s? Round your answer to 2 decimal places
d. How much safety stock is Kuh’s holding? Round your answer to 2 decimal places.
e/ What service level is Kuh’s currently using (in percentage points)? Round your answer to 2 decimal places.
Hint: The standard deviation of the annual demand for coconut macadamia nut ice cream is 5 square-root 1000