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At an office products company, inventory is kept of Keurig coffee pods. Boxes of breakfast blend pods cost the company $5.50; they sell each box for $9.00. Last year, demand for this product was 72 boxes per week, evenly spaced throughout the year. This demand is expected to continue in the future. The holding cost rate is estimated to be 20% annually. The shipping and other ordering costs is $40 per order.
a. If the company used a fixed order quantity model, calculate the optimal economic order quantity (EOQ). Show all work.
b. If management decided to order the boxes of breakfast blend pods on a weekly basis (one order per week), how much more would it cost the company per year (using just ordering and holding costs)? Show all work.
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