Question

A gourmet coffee shop in downtown SF is open 200 days a year and sells an average of 75 pounds of Kona Coffee beans a day. (Demand can be assumed to be distributed normally with a standard deviation of 15 pounds/day.) After ordering (fixed cost = $16 per order), beans are always shipped from Hawaii within exactly 4 days. Per-pound annual holding costs for the beans are $3. a) What is the economic order quantity (EOQ) for Kona coffee beans? (400)

Answer 1

To calculate the Economic Order Quantity (EOQ) for Kona coffee beans, we use the EOQ formula with the annual demand, ordering cost, and holding cost provided, resulting in an EOQ of 400 pounds per order.

Step-by-step explanation:

The question asks us to calculate the Economic Order Quantity (EOQ) for Kona coffee beans at a gourmet coffee shop in downtown San Francisco. The EOQ model helps determine the optimal order size that minimizes the sum of ordering and holding costs. To compute the EOQ, we use the formula: EOQ = √((2DS)/H), where D is the annual demand, S is the ordering cost per order, and H is the holding cost per unit per year.

Given the information:

• Demand (D): 200 days * 75 pounds/day = 15,000 pounds per year
• Ordering Cost (S): $16 per order
• Holding Cost (H): $3 per pound per year

Using these values, the EOQ for Kona coffee beans is calculated as:

EOQ = √((2 * 15,000 * 16)/3) = √(480,000/3) = √160,000 = 400 pounds

Therefore, the economic order quantity for Kona coffee beans is 400 pounds per order.