A specialty coffee house sells Columbian 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 the coffee. Holding costs are based on a 30% annual rate.
a) Determine the optimal order quantity for coffee
b. What is the time between placement of orders?
c. What is the average annual inventory holding cost?
d. What is the average annual ordering cost?
2. 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?
3. A local machine shop buys hex nuts and molly screws from the same supplier. The hex nuts cost $0.50 each and the molly screws cost $1.50 each. An ordering cost of $75 is assumed for all orders. holding costs are based on a 30% annual rate. The shop uses an average of 30,000 hex nuts and 22,500 molly screws annually.
a. What is the optimal order size for each of the 2 items?
b. What is the time between orders for each of the 2 items?