Question

PBK uses 50 bags of whole bean coffee every month, assume demand is steady throughout year. PBK has signed contract to purchase coffee from Phis Roasters for price of $25 per bag and $85 fixed cost for every delivery independent of the order size. PBK incurs an inventory Holding cost of 24% per year.

a) To minimize the total of holding and ordering cost how many bags PBK should order each time?

b) If the supplier, Phish Roasters, only allows the order quantity in cases, with each case containing 50 bags of whole bean coffee. To minimize the total of holding and ordering cost, what should be PBK’s order quantity?

c) The supplier, phish Roasters, offers a 10% discount if PBK buys 300 bags each time. What is the total holding and ordering cost if PBK accepts the offer.

Answer 1