Tasty Treats Executive Brief

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School

Northeastern University *

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2301

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Business

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Apr 3, 2024

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docx

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Uploaded by MegaValorMole34

SCHM2301 Professor Power 6 February 2024 Tasty Treats Executive Brief Existing TAC: = C0*(D/Q) + UC1*Q/2 = $100*(30,000/1,000) + ($25*0.15)(1,000/2) + ($25)(30,000) = $754,875 EOQ for $25: = SQRT [(2DC0/UC1)] = SQRT [(2*30,000*$100) / ($25*0.15)] = 1,265 units New TAC with EOQ at $25: = $100(30,000/1,265) + ($25*0.15)(1,265/2) + ($25*30,000) = $754,743.42 EOQ for $24.5: = SQRT [(2DC0/UC1)] = SQRT [(2*30,000*$100) / ($24.5*0.15)] = 1,278 cases New TAC with EOQ at $24.5: = Annual Order Cost + Annual Carrying Cost + Annual Product Cost = $100(30,000/3,000) + ($24.5*0.15)(3,000/2) + ($24.5*30,000) = $741,512.50 Cost of Alternative Safety Stock Policies: Safety Stock = z *σ For 99%: σ = SQRT [(10*8^2) + (100^2*2^2)] = 201.594 Using Z-Score Table for 99% → z = 2.33 SS = 2.33*201.594 = 470 units For 95%: σ = SQRT [(10*8^2) + (100^2*2^2)] = 201.594 Using Z-Score Table for 95% → z = 1.65 SS = 1.65*201.594 = 333 units Carrying Cost = UC1*Q/2 For 99%:

CC = ($25*0.15)(470) = $1,762.50 For 95%: CC = ($24.5*0.15)(333) = $1,223.78 Would you take the Discount? Why? I would recommend taking the discount. By increasing the order quantity to 3,000 units (because of the bulk discount), the business will be able to lower their total acquisition cost from $754,743.42 for 1,265 units to $741,512.50 for 3,000 units (greater value for their money). This is also due to the fact that, with the discount, the unit price is lower from $30 to $24.50. As well as this, Tasty Treats will also be able to reduce the number of times they order these cases per year as they are receiving more at one time. What Service Level would you offer? Explain. While a 99% service level is typically seen as the more ideal option as it is a greater measure of the ability of a business to meet customer demand, a 95% service level is more practical in the case of Tasty Treats. By keeping the service level at 95%, the company’s total acquisition cost decreases from $754,743.42 (at a 99% service level) to $741,512.50 (at a 95% service level). Also, there is a smaller carrying cost associated with a 95% service level ($1,762.50 for 99% compared to $1,223.78 for 95%). Thus, a 95% service level would be more feasible.

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