Single Period Model

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Exercise 1

Consider a hardware supply warehouse that is contractually obligated to deliver 1,000 units of specialized fastener to a local manufacturing company each week. Each time the warehouse places an order for these items from its supplier, an ordering and transportation fee of $20 is charged to the warehouse. The warehouse pays $1.00 for each fastener and charges the local firm $5.00 for each fastener. Annual holding costs is 25 percent of inventory value, or $0.25 per year. The warehouse manager would like to know how much to order when inventory gets to zero. Assume that the warehouse works 50 weeks a year. 400

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