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    Man Science TP10

    Uploaded by

    Bella Asupan

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    Man Science TP10

    Uploaded by

    Bella Asupan
    8 views2 pages

    Copyright

    © © All Rights Reserved

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    PDF, TXT or read online from Scribd

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    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    8 views2 pages

    Man Science TP10

    Uploaded by

    Bella Asupan

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 2

    Diamant Foods Company

    Diamant Foods Company produces various food products, including a line of candies. One of its
    most popular candy items is Divine Diamonds, a bag of a dozen individually wrapped diamond-
    shaped candies made primarily from a blend of dark and milk chocolates, macadamia nuts, and
    a blend of heavy cream fillings. The item is relatively expensive, so Diamant Foods produces it
    only for its eastern market, encompassing urban areas such as New York, Atlanta, Philadelphia,
    and Boston. The item is not sold in grocery or discount stores but mainly in specialty shops and
    specialty groceries, candy stores, and department stores.
    Diamant Foods supplies the candy to a single food distributor, with several warehouses on the
    East Coast. The candy is shipped in cases of 60 bags per case. Diamonds sell well, despite being
    expensive, at $9.85 per bag (wholesale). Diamant uses high-quality, fresh ingredients and does
    not store large candy stocks in inventory for very long periods.
    Diamant’s distributor believes that demand for the candy follows a seasonal pattern. It has
    collected demand data (i.e., cases sold) for Diamonds from its warehouses and the stores it
    supplies for the past three (3) years, as follows:
    Demand (cases)
    Month Year 1 Year 2 Year 3
    January 192 212 228
    February 210 223 231
    March 205 216 226
    April 260 252 293
    May 228 235 246
    June 172 220 229
    July 160 209 217
    August 147 231 226
    September 256 263 302
    October 342 370 411
    November 251 260 279
    December 273 277 293

    The distributor must hold the candy inventory in climate-controlled warehouses and be careful
    handling it. The annual carrying cost is $116 per case. Diamonds must be shipped a long distance
    from the manufacturer to the distributor, and to keep the candy as fresh as possible, trucks must
    be air-conditioned, shipments must be direct, and shipments are often less than a truckload. As
    a result, the ordering cost is $4,700.
    Diamant Foods makes Diamonds from three (3) primary ingredients it orders from different
    suppliers: dark and milk chocolate, macadamia nuts, and a special heavy cream filling. Except for
    its unique shape, a Diamond is almost like a chocolate truffle. Each Diamond weighs 1.2 ounces
    and requires 0.70 ounce of blended chocolates, 0.50 ounce of macadamia nuts, and 0.40 ounce
    of filling to produce (including spillage and waste). Diamant Foods orders chocolate, nuts, and
    filling from its suppliers by the pound. The annual ordering cost is $5,700 for chocolate, and the
    annual carrying cost is $0.45 per pound. The ordering cost for macadamia nuts is $6,300, and
    the annual carrying cost is $0.63 per pound. The ordering cost for filling is $4,500, and the annual
    carrying cost is $0.55 per pound.
    Each of the suppliers offers the candy manufacturer a quantity discount price schedule for the
    ingredients, as follows:
    Chocolate Macadamia Nuts Filling
    Price Quantity (lb.) Price Quantity (lb.) Price Quantity (lb.)
    3.05 0-50,000 6.50 0-30,000 1.50 0-40,000
    50,001- 30,0001- 40,001-
    2.90 6.25 1.35
    100,000 70,000 80,000
    100,001-
    2.75 5.95 70,001+ 1.25 80,001+
    150,000
    2.60 150,001+

    Instruction:
    1. Determine the inventory order quantity for Diamant’s distributor.
    2. Compare the optimal order quantity with a seasonally adjusted forecast for demand. Does
    the order quantity seem adequate to meet the seasonal demand pattern for Diamonds
    (i.e., is it likely that shortages or excessive inventories will occur)?
    3. Identify the causes of the seasonal demand pattern for Diamonds.
    4. Determine the inventory order quantity for each of the three (3) primary ingredients that
    Diamant Foods orders from its suppliers.

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