A gourmet coffee shop in downtown SF is open 250 days a year and sells an average of 80 pounds of Kona Coffee beans a day. it purchase coffee beans for $20.00 per pound.

Question

ordering (fixed cost = $16 per order), beans are always shipped from Hawaii within exactly 2 days.
Per-pound annual holding costs for the beans are $3.

a) What is the economic order quantity (EOQ) for Kona coffee beans? (400)
quantity (EOQ) = sqrt(2DS/H) = sqrt(2*20000*80*16/3)= 400 pounds

b) What are the total annual holding costs of cycle stock for Kona coffee beans? ($600)
total annual holding costs = h × Q/2 = 3*400/2= $600

Answer 1

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