Problem 1
Chapter 9: A specialty coffeehouse sells Colombian coffee at a fairly steady rate of 65 pounds per week. The
beans are purchased from a local supplier for $4 per pound. The coffeehouse estimates that it costs $50 in
paperwork and labor to place an order for the coffee, and the annual holding cost is 20% of the purchasing
price. (Use 52 weeks/year)
a) What is the economic order quantity (EOQ) for Colombian coffee?
b) What is the optimal number of orders per year?
c) What is the optimal interval (in weeks) between the orders?
Problem 2
Chapter 9: A store has collected the following information on one of its products:
• Demand = 6,760 units/year
• Standard deviation of weekly demand = 18 units
• Ordering costs = $40/order
• Holding costs = $2/unit/year
• Cycle-service level = 90%
• Lead-time = 3 weeks
• Number of weeks per year = 52 weeks
a) If the firm uses the continuous review system to control the inventory, what would be its order quantity
and reorder point?
b) Assume that the firm decided to change to the periodic review system to control the item’s inventory. The
time between reviews, P, is calculated using the EOQ model. For the most recent review, an inventory
clerk checked the inventory of this item and found 500 units. There were no scheduled receipts or
backorders at the time. Determine how many units should the firm order.