Question

a small coffee shop consumes on average 5000 bags of their most popular coffee beans each month. the shop pays $13 for each bag to the supplier. the cost of ordering and receiving shipments is $16 per order. accounting estimates annual inventory carrying cost is 30% of its value. the supplier lead time is a constant of 5 operating days. the shop operates 240 days per year, i.e., the shop operates 20 days each month. each order is received from the supplier in a single delivery. the coffee shop uses a continuous review (i.e., fixed-order quantity) inventory system and pays the supplier when the order is delivered (i.e., cash on delivery). there are no quantity discounts. please keep two decimal places in your calculations. q1) what quantity should the shop order with each order?

Answer 1

The coffee shop should order approximately 43.82 bags of coffee beans with each order.

Step-by-step explanation:

The quantity that the coffee shop should order with each order can be calculated using the Economic Order Quantity (EOQ) formula. The EOQ formula is given by:

EOQ = √((2 * D * S) / H)

Where:

• D = Annual demand for coffee beans = 5000 bags per month * 12 months = 60000 bags
• S = Cost of placing an order = $16
• H = Annual inventory carrying cost = 30% * (5000 * 13) = $19,500

Plugging in the values:

• EOQ = √((2 * 60000 * 16) / 19500) = √(1920) ≈ 43.82

Therefore, the coffee shop should order approximately 43.82 bags of coffee beans with each order to minimize the total inventory cost.