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Inventory model

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First City Bank orders cash from the Federal Reserve Board to meet daily transaction needs. Linda Davis, the operations manager, estimates that $5,000,000 in cash will be needed next month. She has estimated that the cost to order, receive, and store each shipment of cash from the Federal reserve Board will be $675 per shipment. First City Bank is open for business 250 days each year. The bank's related carrying cost for cash is 0.65 percent per month. That is, each dollar help in the bank's vault costs $0.0065 per month in foregone profits.

a) How much should Linda order from the Federal Reserve Board each time a cash order is placed?

b) What is the expected total annual carrying cost plus ordering cost?

c) How many working days should one shipment of cash last First City Bank?

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Solution Summary

Solution contains calculations of amount of order each time a cash order is placed, s the expected total annual carrying cost plus ordering cost, number of working days should one shipment of cash last First City Bank.

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