A special coffeehouse sells Colombian coffee at a fairly steady reat of 30 pounds per month. The beans are purchased from a local supplier for $3.20 per pound. The coffeehouse estimates that it costs about $60 in paperwork and labour to place an order for the coffee, and the holding costs are based on a 15% annual interest rate.
a) What is the optimal opder quantity for Colombian coffee?
b) If the replenishment lead time in 10.6 months, what is the re-order level based on the on-hand inventory?
c) What is the average annual cost of holding and setup cost due to the optimal order?