PBK uses 50 bags of whole bean coffee every month, assume demand is steady throughout year. PBK has signed contract to purchase coffee from Phis Roasters for price of $25 per bag and $85 fixed cost for every delivery independent of the order size. The holding cost due to storage is $1per bag per month. PBK managers figure their cost of capital is approximately 2 percent per month.
a) What is the optimal order size in bags?
b) Given your answer in (a )how many time sa year does PBK place orders?
c) Given your answer in (a) how many months of supply of coffee doe PBK have on average
d) On average, how many dollars per month dos PBK spend to hold coffee ( including cost of capital)?
e) Suppose that a South American import/export company has offered PBK a deal for the next year. PBK can buy a years worth of coffee directly from south America for $20 per bag and a fixed cost for delivery of $500. Assume the estimated cost for inspection and storage is $1 per bag per month and cost of capital is approximately 2 percent per month. Should PBK order from Phish Roasters or the South American import/export company? Quantitatively justify your answer.