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Powered by Coffee (PBK) is a new campus coffee store. PBK uses 50 bags of whole bean coffee every month, and demand is steady throughout the year. PBK has signed a contract to purchase it’s from a local supplier, Phish Roasters, for a price of $25 per bag and an $85 fixed cost for every delivery independent of the order size. PBK incurs an inventory holding cost of 24 percent per year. What order quantity minimizes PBK’s ordering and holding costs per year? 200 100
Expert Answer
Ans. The Economic Order Quantity (EOQ) is calculated as under:
Demand per year: 600 bags
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Question & Answer: Powered by Coffee (PBK) is a new campus coffee store. PBK uses 50 bags of whole bean coffee every…
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Inventory holding cost: $ 6 per unit (24% of per bag cost)
Cost per order: $ 85
EOQ = SQRT (2 × Quantity × Cost Per Order / Holding Cost Per Order)
So the the EOQ is 130 bags.
