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What is the store minimum total annual cost of placing order

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Reference no: EM133070631

Question - A small coffee shop consumes on average 5000 bags of their most popular coffee beans each month. Demand is normally distributed with standard deviation of the monthly demand being 200 bags. The shop pays $12 for each bag to the supplier. The cost of ordering and receiving shipments is $15 per order. Accounting estimates annual inventory carrying cost is 30% of its value. The supplier lead time is a constant of 2 operating days. The shop operates 240 days per year, i.e., the shop operates 20 days each month. Each order is received from the supplier in a single delivery. The coffee shop uses continuous review (i.e., fixed-order quantity) inventory system and pays the supplier when the order is delivered (i.e., cash on delivery). There are no quantity discounts.

Required - What is the store's minimum total annual cost of placing orders & carrying inventory (cycle stock)?

Reference no: EM133070631

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