A specialty coffeehouse sells Colombian coffee at a fairly steady rate of 65 pounds per week. The beans are purchased from a local supplier for $4 per pound. The coffeehouse estimates that it costs $50 in paperwork and labor to place an order for the coffee, and the annual holding cost is 20% of the purchasing price. (Use 52 weeks/year)
a. What is the economic order quantity (EOQ) for Colombian coffee?
b. What is the optimal number of orders per year?
c. What is the optimal interval (in weeks) between the orders?
d. (BONUS) Assume that the coffeehouse’s current order policy is to buy the beans every 13 weeks. The manager says that the ordering cost of S = $50 is only a guess. Therefore, he insists on using the current policy. Find the range of S for which the EOQ you found in part a) would be preferable (in terms of a lower total replenishment and carrying costs) to the current policy of buying beans every 13 weeks.