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A Home 12% Format Picture Layout Document Elements Tables Charts smartArt Review Paragra Styl AaBbc AaBbCcDdEle Normal No spacing Heading 1 Heading 2 12.40 A gourmet coffee shop in downtown San Francisco is open 200 days a year and sells an average of 75 pounds of Kona cof- fee beans a day. Demand can be assumed to be distributed normally with a standard deviation of 15 pounds per 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? b) What are the total annual holding costs of stock for Kona coffee beans c) What are the total annual ordering costs for Kona coffee beans? Print Layout View Sec Pages: 1 of 1 Subtitl Q Search in Document Aa Text Box Shape Picture Themes 207% O

Explanation / Answer

Solution:

Economic Order Quantity (EOQ) = [2* Annual Demand * Cost Per Order / Holding Cost].

Annual Demand = 75 pounds * 200 days = 15,000 pounds.

Economic Order Quantity (EOQ)

= [2 * 15,000 * $16 / $3

= 160,000

= 400

Economic Order Quantity (EOQ) = 400 pounds.

Annual Holding Cost = Economic Order Quantity * Holding Cost / 2.

Annual Holding Cost = 400 * 3 / 2 = $600

Annual Holding Cost = $600.

Annual Ordering Costs = Annual Demand * Cost Per Order / Economic Order Quantity

Annual Ordering Costs = 15,000 * 16 / 400 = $600

Annual Ordering Costs = $600.

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