The Homemade Bread Company buys and then sells (as bread) 2.6 million bushels
of wheat annually. The wheat must be purchased in multiples of 2,000 bushels.
Ordering cost which include grain elevator removal charges of $3,500,
are $5,000 per order. Annual carrying costs are 2 percent of the purchase price
of $5 per bushel. The company maintains a safety stock of 200,000 bushels.
The delivery time is six weeks.
Q: At what inventory level should an order be placed to prevent having to
draw on safety stock?
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