What inventory level should co?ee shop use as reorder point

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Reference no: EM132245184

A co?ee shop sells bags of roasted co?ee beans to customers to make into co?ee at home. The demand for these bags is quite predictable (and can be treated as deterministic for our purposes). The shop sells 3,500 bags of co?ee beans per year. Each time the shop places an order for these bags with its co?ee supplier, it incurs an administrative cost of $15, independent of the quantity ordered. The company values each bag at $12.50 (this is the book value, not the selling price), and the company’s inventory carrying rate is 15% per year.

Assume that there is a delay of 3 weeks between when the co?ee shop submits an order and when they receive it. What inventory level should the co?ee shop use as its reorder point?

Reference no: EM132245184

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