Question

Groundz Coffee Shop uses 4 pounds of a specialty tea weekly; each pound costs $16. Carrying costs are $1 per pound per week 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. How many pounds should Groundz order at a time

Answer 1

8 pounds

Step-by-step explanation:

The computation of economic order quantity is

EOQ = √ 2 × Annual demand × Ordering cost / Carrying cost

Where;

Annual demand = 52 weeks × 4 pounds = 208 pounds

Ordering cost = $8

Carrying cost = $1 per pound per week × 52 = $52

EOQ = √ 2 × 208 × $8 / $52

EOQ = 8 pounds

Therefore, Grounds should order 8 pounds at a time.