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Coffee store: Inventory with Known Demand; optimal order siz

2) A coffee store is experiencing sales of 280 pounds of coffee beans per year. The supplier charges the store $2.40 per pound, and the paperwork and labor costs incurred by the store in placing an order total $45 per order. Holding costs are based on 20% interest rate per annum.

Answer the following questions:
2.1) What is the optimal order size (write down the model name, its parameters and formula)?
2.2) What is the time between order placements (include the formula)?
2.3) What is the average annual holding cost (include the formula)?
2.4) If the lead time is 3 weeks, what is the reorder level based on inventory on hand (include the formula)?

Solution Preview

Demand = 280 lbs

Ordering Cost = $45

Holding Cost per unit = @2.4 x 20% = $0.48

Price per Unit = $2.40

2.1) (5 points) What is the optimal order size (write down the model name, its parameters and formula)?

Model Name = Economic Order Quantity

EOQ = SQRT [2 x Demand x Ordering Cost / ...

$2.19