The annual holding cost is the purchasing price

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Reference no: EM1389387

A specialty coffeehouse sells Colombian coffee at a fairly steady rate of 78 pounds per week. The beans are purchased from a local supplier for $4.00 per pound. The coffeehouse estimates that it costs $45 in paperwork and labor to place an order for the coffee, and the annual holding cost is 15% of the purchasing price.

Assume that the coffeehouse's current order policy is to buy the beans every 8 weeks. The manager says that the ordering cost of S = $45 is only a guess. Therefore, he insists on using the current policy. Find the range of S for which the EOQ you found in part a) would be preferable (in terms of a lower total replenishment and carrying costs) to the current policy of buying beans every 8 weeks.

Reference no: EM1389387

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