Tyler is hoping to get a lot of custom cake and cookie orders in his new bakery for various parties and celebrations. He considers keeping a stock of celebratory helium balloons in his bakery so that he can sell them alongside the cakes and cookies to add more value for his customers. However, he knows that the demand for custom goods as well as the balloons is like to be probabilistic in nature instead of deterministic. He is trying to create a model of how many balloons to order to keep in stock to minimize the costs of inventory in his little bakery. He identifies the following characteristics and needs your help in filling out the table given below the information. Ordering Cost is $20.00 per order Cost of balloons is $5.00 per balloon The bakery uses the 20% annual holding cost rate for all inventory The lead time for a new order of helium balloons is 21 days. Data from other bakeries indicate that the demand during the 21-day lead time follows a normal probability distribution with a weekly mean of 25 balloons and a standard deviation of 7 balloons per week. The number of working days per year is 300 Acceptable probability of a stock-out, for Tyler is 10% or 0.10. 4 Average Inventory Level (Q*/2)+S balloons 5| Reorder Point r balloons Number of Orders per Year 6 (D/Q*)
Tyler is hoping to get a lot of custom cake and cookie orders in his new bakery for various parties and celebrations. He considers keeping a stock of celebratory helium balloons in his bakery so that he can sell them alongside the cakes and cookies to add more value for his customers. However, he knows that the demand for custom goods as well as the balloons is like to be probabilistic in nature instead of deterministic. He is trying to create a model of how many balloons to order to keep in stock to minimize the costs of inventory in his little bakery. He identifies the following characteristics and needs your help in filling out the table given below the information. Ordering Cost is $20.00 per order Cost of balloons is $5.00 per balloon The bakery uses the 20% annual holding cost rate for all inventory The lead time for a new order of helium balloons is 21 days. Data from other bakeries indicate that the demand during the 21-day lead time follows a normal probability distribution with a weekly mean of 25 balloons and a standard deviation of 7 balloons per week. The number of working days per year is 300 Acceptable probability of a stock-out, for Tyler is 10% or 0.10. 4 Average Inventory Level (Q*/2)+S balloons 5| Reorder Point r balloons Number of Orders per Year 6 (D/Q*)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:Tyler is hoping to get a lot of custom cake and cookie orders in his new bakery for various parties and
celebrations. He considers keeping a stock of celebratory helium balloons in his bakery so that he can sell
them alongside the cakes and cookies to add more value for his customers. However, he knows that the
demand for custom goods as well as the balloons is like to be probabilistic in nature instead of
deterministic. He is trying to create a model of how many balloons to order to keep in stock to minimize
the costs of inventory in his little bakery. He identifies the following characteristics and needs your help in
filling out the table given below the information.
Ordering Cost is $20.00 per order
Cost of balloons is $5.00 per balloon
The bakery uses the 20% annual holding cost rate for all inventory
The lead time for a new order of helium balloons is 21 days.
Data from other bakeries indicate that the demand during the 21-day lead time follows a normal
probability distribution with a weekly mean of 25 balloons and a standard deviation of 7
balloons per week.
The number of working days per year is 300
Acceptable probability of a stock-out, for Tyler is 10% or 0.10.
4 Average Inventory Level (Q*/2)+S
balloons
5| Reorder Point r
balloons
Number of Orders per Year
6
(D/Q*)
Expert Solution
Step 1
Inventory -
A manufacturing company's inventory is a crucial current asset. Inventory is the actual stock of items that the company has on hand at any particular time.
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