Lecture Activity

THURSDAY
S1, 2009

 A McDonalds Franchise expects to sell 50,000 Big Mac sandwiches annually. The special Big Muc buns can be
ordered by packs only and each pack contains 10 buns. The cost of placing an order is $50, while the storage
cost is $0.50 per pack. According to their records the average daily sales of Big Mac is 137, the maximum ever
daily sales is 250 and the typical minimum sales is 50. Packs with the Big Macs buns normally arrive 10 days
after the order. In the past the maximum delivery times was 20 days, and the minimum was 7 days.
 Required:
1. How much is the EOQ? 1000 packs
2. Calculate the reorder point and explain it briefly. [(250/10)*20] = 500 packs
3. How would the reorder point change, if the permanent safety stock is 100 packs?
[500+100] = 600
S1 2018

 FSC Ltd buys 20 litre drums of herbicide by the pallet of 50 drums. Each drum sells for
$200 and costs $150 landed in the store. About 3000 drums of this size are sold each year.
Occasisonally (average one drum in every 8 pallets) a drum is damaged in the store and is
unsaleable. Its costs $10 additionally to dispose of the damaged drum and contents and
clean up the mess. Othe rholding costs average $10 per pallet. Order cotss are estimated
to be $1 . What is EOQ?
Theory Question

 Explain why it is not advisable to finance permanent assets with short term financing?
 EZY Buy would like to take on a 3 year long term loan to finance its Christmas
Decorations inventory. Would that be advisable? Explain.