Problem 2. (Chapter 8) Dominic’s supermarket chain sells Nut Flakes, a popular cereal manufactured by the Tastee cereal company. Demand for Nut Flakes is 2,000 boxes per week. Dominick’s has a holding cost of 30 percent and incurs a fixed trucking cost of $250 for each replenishment order it places with Tastee.
(a) Given that Tastee normally charges $3 per box of Nut Flakes, how much should Dominick’s order in each replenishment lot?
(b) Tastee runs a trade promotion, lowering the price of Nut Flakes to $2.70 for a month. How much should Dominick’s order be, given the short-term price reduction? (Hint: This problem is similar to the example 11 in Slides 34-36 of Chapter 8)
