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A coffee house sells Boise Blue Mountain Coffee at a rate of 280 pounds annually. The beans are purchased from a local supplier for $2.40 per pound. The coffee house estimates that it costs $45 in paperwork and labor to place an order for the coffee and that holding costs are based on a 20% annual interest rate.
1) Determine the optimal order quantity for Boise Blue Mountain Coffee.
2) What is the time between placement of orders?
3) What is the average annual cost of holding and setup due to this item?
4) If the replenishment lead-time is three weeks, determine the reorder point based on the on-hand inventory.
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