Question

A specialty coffeehouse sells Columbian coffee for $7 per pound at a fairly steady rate of 320 pounds annually. The beans are purchased from a local supplier for $1.80 per pound. The coffeehouse estimates that it costs $30 in paperwork and labor to place an order for the coffee, and holding costs are based on a 12 percent annual interest rate

a. Determine the optimal order quantity for Colombian coffee.

b. What is the time between placement of orders?

c. What is the average annual cost of setup and inventory holding due to this item?

d. If replenishment lead time is three weeks, determine the reorder point in terms of the coffeehouse’s inventory level.

Answer 1