Question

Asked Feb 26, 2019

32 views

I need assistance to solve the following problem in Operations Analysis.

**2) **A coffee store is experiencing sales of 280 pounds of coffee beans per year. The supplier charges the store $2.40 per pound, and the paperwork and labor costs incurred by the store in placing an order total $45 per order. Holding costs are based on 20% interest rate per annum.

a) What is the optimal order size (write down the model name, its parameters and formula)?

b) What is the time between order placements (include the formula)?

c) What is the average annual holding cost (include the formula)?

d) If the lead time is 3 weeks, what is the reorder level based on inventory on hand (include the formula)?

Step 1

Step1: Calculating the value of optimal order size. We have,

Model Name: Economic order quantity (EOQ)

The formula of EOQ is as follow:

EOQ = Square Root of [2 x Demand x ordering cost per purchase order/ Holding cost per unit, per year]

Here,

Demand of coffee beans = 280 pounds

Ordering cost per purchase order = $ 45 per order

Holding cost = $ 2.40 x 20% = $ 0.48 per pound, per year

By substituting this value in the above formula. We get;

EOQ = Square Root of [2 x 280 x $ 45 / $ 0.48]

EOQ = Square Root of [52,500]

EOQ = 229.13 Pounds

Step 2

Step2: Calculating the time between order placements. We have,

Number of order = EOQ / Annual Demand

Number of order = 229.13 pounds / 280 pounds

Number of order = 0.82

Assuming 52 weeks in a year.

Time between order placement = Number of order x Number of weeks in a year

Time between order placement = 0.82 x 52

Time between order placement = 42.64 weeks

Step 3

Step3: Calculating the value of the average annual holding cost. We have,

Average annual holding cost = EOQ/2 x Hol...

Tagged in

Find answers to questions asked by student like you

Show more Q&A

Q: ProHaul specializes in trans-American shipments for businesses through the delivery of containers. ...

A: Calculating the value of break-even sales for the company. We have, The formula of break-even sales ...

Q: I need a detailed explanation and assistance to solve this problem: Wineco produces wine cooler as a...

A: Since the model is needed to solve for the quantities of ingredients to be purchased in order to max...

Q: 16.6 which type of graph would you recommend to show each of the following? why? A. A comparison of ...

A: A. Since we want to compare the changes in the annual per capital income of two countries over a per...

Q: What is seasonality?How do we forecast using data that has seasonality?

A: Seasonality in time series data is the occurrence of repetitive up and down cycles in series values ...

Q: The New England produces two cheese spread by blending mild cheddar cheese with extra sharp cheddar ...

A: Consider X and Y represents regular cheese and zesty cheese quantitySo,Sales revenue

Q: I need a detailed explanation on how to solve this problem: A bagel shop buys each bagel for $0.08 a...

A: Given Information:Each bagel buys at the rate of $0.08And each bagel sells at the rate of $0.35Purch...

Q: How do I explain 'Observation' in a essay?

A: IntroductionObservation is very important while writing an essay. Observation is very important not ...

Q: Are employees more likely to favor defined contribution plans over defined benefit plans? What about...

A: A retirement plan is divided into two categories: contribution plans and defined benefits plans.

Q: You’re a manager who employs a participative control approach. You’ve concluded that corrective act...

A: In this globalized world, it is very important for organizations to work well in teams. A participat...