Chicagoland Sweets, a commercial baker, uses 4000 pounds of flour every week at a steady rate. They buy flour in 50-pound bags at a cost of $20 per bag. Chicagoland’s management estimates that they incur a fixed cost of $64 every time they place an order for flour. Their cost of inventory is 25% per year (Assume that 1 year = 50 weeks). Please provide formulas and explanations. What would be their optimal order quantity? What would be the number of orders they would place every year? What would be the average flour inventory? What would be their annual cost of ordering and holding inventory?
