Question

Groundz Coffee Shop uses 4 pounds of a specialty tea weekly primarily due to local demand from CSUSM University students. Holding / Carrying costs are $1 per pound per week, or $52/year, because space is very scarce. It costs the firm $8 to prepare an order. Assume the basic EOQ model with no shortages applies. Assume 52 weeks per year, closed on Mondays. A Barista is planning her orders. How many days will there be between orders, assume 312 operating days, if Groundz practices EOQ behavior?

Answer 1

Assuming 312 operating days, the number of days between orders will be

= 312 days / 26 orders

= 12 days

Step-by-step explanation:

EOQ =
`√(2 * Annual Demand * Ordering Cost / Carrying Cost)`

Annual demand = weekly usage * assumed number of weeks in a year

= 4 pounds * 52 weeks

= 208 pounds

Carrying cost for the year = $1 * 52 weeks = $52

Ordering cost = $8

∴ EOQ =
`√(2 * 208 * 8 / 52)`

=
`√(3328 / 52)`

=
`√(64)`

Economic Order Quantity = 8 pounds

Since EOQ is 8 pounds and annual demand is 208 pounds

∴ number of orders in the year = 208/8

= 26 orders

Answer 2

14 days

Step-by-step explanation:

EOQ=√((2× the annual demand in units× the cost to process an order) ÷ (the annual cost to carry one unit in inventory))

EOQ= √((2×4×52×8)/52

= 8 pounds

Since four pounds are required every week and EOQ is 8, there will be 14 days before the shop runs out of stock