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Import Beer product line: Method for optimal ordering quantities

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Subject: Re: Quarterly Ordering Decisions

Here is what we would like you to do. We want you to use the Import Beer product line as a test case for developing an optimization program. Use the Excel file that we have developed with the forecast information for the import beer product line. Other information that you will need has been provided by Accounting: inventory holding costs, product costs and price markups.

The information has been provided in the Excel file. [EBBD-ImportsData]

We want you to develop a method that will determine the optimal ordering quantities so that we maximize the gross profits and also take into account inventory holding costs.

After developing this method, write a short report to management explaining what you did and how this method can be used going forward on a quarter by quarter basis and for the other product lines. Also attach any calculations or analysis that you did in an Excel file.

Setup the decision cells, the inventory cells and inventory constraints. Then add the calculations for income and costs. Make sure you get the timing right for which inventory is sold in which quarter. You could develop intermediate cells that calculate the costs, just to help you keep track of this. Be sure to use the quarterly inventory holding cost rate. Then calculate the gross profit cell.

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Solution Summary

The methods for optimal ordering quantities for import beer product lines are examined.

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Optimal order quantity

Optimal order quantity determines how many units are to be ordered and the method to do so is to use the economic order quantity model. Vallabhaneni (2009) provides that the economic order quantity is useful because it provides the least cost quantity of inventory that should be ordered. The model provides a trade off between the cost of ordering and carrying cost therefore results in inventory levels that reduce cost. The economic order quantity model can ...

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