Steve’s Beta House, a popular sandwich place oncampus, has decided to bake its own buns.Whiledemand for the basic bun is 180 dozen per day (theshop is open from noon to midnight, 300 days peryear, and closed on Sundays), the company is currentlybuying buns every Monday and Thursdayfrom a bakery about 2 hours away. The driverchecks the stock of buns and leaves whatever ittakes to get stock levels to 565 dozen. Steve haschecked the invoices recently and found the averagedelivery to be about 540 dozen. Steve workedout the schedule based upon the bakery’s estimateddelivery cost ($300 per trip) and Steve’s estimatefor keeping buns in stock. Assume Steve can leasean oven that could bake 36 dozen buns per hourand have a setup cost of $36 per order. The ovencould only be operated while the shop is open butits capacity during that time could be shared byother products used at Steve’s.a) What is the safety stock level currently impliedby the ordering policy?b) What is the cost of holding inventory impliedby the current ordering policy? Given the shortshelf life of baked goods, does this seem reasonable?c) How many buns should Steve bake beforeswitching to something else in the oven (EPQ)?d) What would be the time required to bake thatquantity?e) How long would that batch of buns last beforeSteve would need to set up and bake anotherbatch?f) What would be the maximum inventory levelunder this policy? Can you explain this giventhe EPQ is greater than the current averageorder size?g) What impact would this change in maximuminventory level have on bun freshness if any?
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