Question

A popular, local coffeeshop in one of the suburbs of New York City (NYC) estimates they use 3,100 pounds of coffee annually. They have to determine how many pounds to order each time in order to minimize their total annual cost. a. Determine the optimal size of the order assuming an EOQ model with a holding cost of $10 per pound annually and an ordering cost of $100.

Answer 1

Economic order quantity (EOQ)= 249 pounds

Step-by-step explanation:

Economic order quantity (EOQ) is the ideal order quantity a company should purchase to minimize inventory costs such as holding costs, shortage costs, and order costs.

Economic order quantity (EOQ)= √[(2*D*S)/H]

D= Demand in units

S= Order cost

H= Holding cost

D= 3,100

S= $100

H= $10

Economic order quantity (EOQ)= √[(2*3,100*100) / 10]

Economic order quantity (EOQ)= 249 pounds