What are total annual fixed ordering costs for coffee beans

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Reference no: EM131801387

A gourmet coffee shop in downtown SF is open 200 days a year and sells an average of 75 pounds of Kona Coffee beans a day. (Demand can be assumed to be distributed normally with a standard deviation of 15 pounds/day.) After ordering (fixed cost = $16 per order), beans are always shipped from Hawaii within exactly 4 days. Per-pound annual holding costs for the beans are $3.

a) What is the economic order quantity (EOQ) for Kona coffee beans? (400)

b) What are the total annual holding costs of cycle stock for Kona coffee beans? ($600)

c) What are the total annual fixed ordering costs for Kona coffee beans? ($600)

d) Assume that management has specified that no more than a 1% risk during stock out is acceptable. What should our reorder point (ROP) be? (369.79)

e) What is the safety stock need to attain a 1% risk of stock-out during lead time? (69.79)

f) What is the annual holding cost of maintaining the level of safety stock needed to support a 1% risk?

g) If management specified that a 2% risk of stock-out during lead time would be acceptable, would our safety stock holding costs decrease or increase?

Reference no: EM131801387

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