Question

A speciality coffee house sells Colombian coffee at a steady rate of 6000 pounds annually. The beans are purchased from a local supplier for $3.00 per pound. The coffee house estimates that it costs them $75 in paperwork and labor to place an order for that coffee. Holding costs are based on a 30% annual rate.

Suppose the coffee from the above problem has a shelf life of 1 month.

a. How often should orders be placed?

b. What quantity should be ordered?

c. How much would this coffee house be willing to pay for a vacuum freezer that would store the coffee for up to 2 months?

d. How about 4 months?

Answer 1

Solution (2* 320 30)/0.216 298 Optimal order quantity = V/(2DC/Ch Part-a) Part-b) Annual Demand / Quantity per order = N = D/Q = 320/198 = 1.074 T 365/Number of orders annually (N) = 365 / 1.074 340 days Part-c) Average annual set up cost= Co * N = [$30* 1.0738] $32.214 Annual inventory holding cost- Average Inventory * Ch (Q/2) * Ch = [(298/2)* 0.216] $32.184 Q 2. K.A h 2 100 20,000 = 4,000 pieces 0.25 T Q/ 4,000 20,000 2.4 months